Insuring your children can be a delicate task but in some circumstances, it does make financial sense. Much depends on your family’s financial situation and on the objectives the policy will serve.
Traditionally, life insurance has been used to protect an individual’s family from an untimely death. If a couple has two small children and the primary income-earner dies, life insurance brings in the money to replace the lost income. Most young couples will not have accumulated enough capital to sustain the loss of income, and even senior couples will likely prefer to offset the income loss through channels other than savings. Without life insurance the consequences can be dire, mostly with regards to the family’s standard of living.
Again, when analyzing your family’s life-insurance needs, it is paramount to insure the primary income-earners first. In most instances, excluding young Hollywood stars, children are not income earners and while a child’s death would have a huge emotional impact, it would probably not have a dramatic negative financial impact. Having said that and assuming that all of your financial needs are covered, there are still long-term benefits to insuring your child early on.
Insuring a child at a young age causes not only that she or he has insurance now, but may guarantee her or his ability to acquire insurance in the future. That is to say even in the case of future health problems, such as asthma or cancer; it will also protect the child should he or she aim for a risky occupation such as a firefighter or pilot. This is the so-called “guaranteed insurability rider” – available on most policies – which allows a child to upgrade and/or prolong her or his insurance in the future, even without a medical examination.
Permanent policies allow your child to lock in at very favourable rates and can be paid up in a limited number of years. The policy may also generate cash value which is available when necessary or to help supplement the child’s retirement income.
When one or both parents have hereditary health issues, insuring a child may have an added importance. If a couple has a history of diabetes and colitis within their immediate family, insuring their newborn at a very young age creates a safety net against the child’s developing future health issues. A child who eventually starts a family of her or his own may have developed health issues in the meantime and – as a result – may not be able to obtain new insurance. Even if it is possible to obtain the insurance, the new policy may have a large surcharge based the health issues. A person on guaranteed insurability rider will not have to face such obstacles.
Permanent policies can also enhance the financial flexibility of the child’s future family. A policy’s cash value can be used to make a down payment on a new home or as collateral for a loan to start up a new business venture.
Indeed, insuring a child is an act of extreme prudence, but offers many convenient and interesting long-term benefits.