Why Parents need Life Insurance for Children

Monday, July 12, 2010

Why Parents need Life Insurance for Children

Parents may have different reasons when they decide to insure their child’s life. Some may argue that life insurance for children is merely an insurance marketing ploy, and insurance firms do it probably to rake in money.

It doesn’t make any sense for parents to opt for life insurance for their children. An Insurance agent, when trying to sell an insurance policy to a parent, would tell, “If your child met with an unlikely end, you are entitled to receive monetary benefits”, which is quite ridiculously.

On the other hand, there exists term based insurance, which carries added benefits for children.
Still, life insurance for children is out there, and parents try and save money on some insurance policies to safeguard their children’s future. There are more aspects of life insurance for children, parents should look at.

Advantages of life insurance for children

Insurance analysts say that it is always wise to opt for life insurance policy for children, when they are a toddler. It gives you plenty of advantage. The first advantage perhaps is that the insurance falls cheap if you do it in the beginning. The premiums are fixed, and it doesn’t rise with the child’s age, which obviously means that, insurance premiums are constant even after say, 15 years.

What happens here is, the dollar valuation at the end of a 15 year period, will not have any effect on the premium amount. The premium remains the same. Insurance agents try and pitch this reason, and so far, it has worked to some extent.

·         Though, as a whole, life insurance policy for children, is not particularly popular. If you look at the statistics, you will find those who have a long family history of hereditary diseases is likely to go in for life insurance for children. 

The catch is if you get hooked on to the disease later on your life, the medical reports won’t allow you to have insurance policies. Parents with a poor medical history are quick to recognize it, and they don’t intend to take further chances. They would be rather choosing to have life insurance for their children now, and stand on a safer platform.

·         The most striking feature of life insurance for children is how you use it. Insurance firms allow you to borrow gains you had accrued from the policies. The best part is that the borrowed money is not taxable. However, there’s one hitch here. You need to keep the life insurance policy till the end to utilize the tax benefits. 

·         Buying a flexible life insurance for children has its own advantage. You renew it at the end of the insurance tenure, and then safely get it converted to whole life insurance. Your children grow up and could avail the benefits of the new whole life insurance.

Why do life insurance for children is not a very popular choice?

Before you jump on to fill a life insurance application form for your kid, you should look at how valuable other options could be. Make your goals clearer.

Do you look to earn money out of your investments, rather pump money on life insurance premium?  If so, you have better options, which would create wealth for your kids. Try investing at Roth IRAs and your investments would turn into substantial gains.

In the present scenario, when economies are running dry, parents are finding hard to get themselves insured. When you arrive at such a scenario, it doesn’t make any sense to push your hard earned dime on life insurance for your children to incur the funeral expenses.

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