The Pros and Cons of Buying Life Insurance for Children
The Pros and Cons of Buying Life Insurance for Children Find out whether buying life insurance for your children makes sense for your situation.
The type of life insurance policy you will typically purchase for your child is referred to as a permanent life insurance policy. A permanent life insurance policy does not expire and will continue for the rest of the child's life as they grow into adulthood.
Products that are known as permanent life insurance are the Whole Life and Universal Life insurance policies sold by insurers. Death Benefit
The death benefit is the amount of insurance for a policy that is paid to a beneficiary. However, when a child is issued an insurance policy the price is based on the this amount of insurance.
Pros: The death benefit from a life insurance policy is used to provide financial security when an earner of the household dies. Proceeds that are received from a life insurance policy are able to use used when expenses result from funeral costs. However, life death benefit from a life insurance policy can be used to pay for medical bills for an uninsured child.
Cons: A young child does not have beneficiaries to consider for a policy. This means that the benefits of a life insurance policy are used to pay for funeral expenses if a child dies. However, this reason alone is not a good reason to not purchase a life insurance policy for your child.
Permanent life insurance products have a cash value component. Cash value is money for a policy that builds up over time. The cash value for a policy is received when a life insurance policy is surrendered.
Depending on the level of cash value accumulated a life insurance policy can be purchased to use as a savings vehicle. A part of the premium payment will go towards the cash value.
Pros: When a permanent life insurance policy is purchased for a child there are benefits available when a child becomes an adult. A loan can be taken out on the policy up to the cash value amount. Loans are only available for a policy that has accumulated a cash value.
Cons: When a loan is taken out on a permanent life insurance policy it does not need to be paid back to the insurer. If a policy loan is not paid back, the amount is deducted from the benefit amount if a policy pays out to a beneficiary.
Pros: The cost of an insurance policy is based on many factors including age. The younger the person is when a policy is purchased the lower the cost. The cost of insurance will increase as a person ages. The premium for the policy will also be set for the length of the policy and will not change.
Cons: Parents will pay the premium for a life insurance policy until it transfers to the child. This means that parents that do not want a high premium will typically purchase a lower amount of coverage.
Once a permanent life insurance policy is purchased the policy will never expire or cannot be canceled unless the premium is not paid. This ensures that coverage will exist if a child develops any illness at a later point in life. Applying for a life insurance policy when an individual is at a later point in there life will cost more and specific requirements need to be met.