Is Life Insurance for Kids a Waste of Your Money?

September 5, 2008 By Tisha (Kulak) Tolar

As a parent the two most important things you can do for your children is love them unconditionally and provide for them as best as you can. Of course there are a million other things that are important in the life of a family and sometimes it is hard to decipher how best to provide for children.

An interesting topic that I have been reading about is the issue of life insurance for children. I, like many parents, was under the impression that purchasing life insurance was a responsible parenting decision. No one ever wants to think of the unthinkable, such as how to pay for the funeral of a child but the decision to purchase life insurance seemed like the right thing to do, or so I thought.

There have been a lot of different views discussed around the internet about buying your kids life insurance and I was stunned to learn that many leading financial experts consider the purchase a waste of money. Essentially, these experts agree that since the purpose of having life insurance is to protect a person in the event of a loss of income, it is pointless for a child to have a policy since a child does not have a job. Many feel that the only reasons a life insurance policy should be purchased for a child is if there is a family history of health issues that could result in difficulties getting insurance later in life. In such a case, insurance experts recommend finding a policy that is renewable and gives the option of converting to a whole life insurance policy.

So what to do? Those who say that insurance policies for children are a waste of money suggest that money be instead deposited into a savings plan, such as a 529 plan or an Education IRA. There is a small percent chance that a child will grow to be uninsurable as an adult and the money saved in an interest-baring account will generate more cash value than the value of the insurance policy.  It is also important that parents understand how essential it is to have adequate insurance on themselves before a policy for a child is even considered. 

Sadly, there are many unscrupulous agents and insurance companies use scare tactics to get parents to purchase policies, such as questioning their love for their children or their responsibilities as a good parent. Ultimately, the decision that is right is the decision that works best for your family and your finances. There are many choices and options regarding financial stability for your children and what works for one family, may not work for others. I feel confident in keeping the policy for my child to ensure that she will grow up to have insurance that she can increase as needed.

Posted in budgeting, children, college, debt, family, financial plans, health, insurance

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