Life insurance. Its something many responsible people think about. Is it worth it to get? And more specifically, is it worth getting life insurance for your kids? This post sent in from a reader explores that.
Life insurance is an investment that many people can easily misunderstand. In order to be able to determine whether or not you should get life insurance for your children, you first have to understand what exactly life insurance is and what is its purpose. Then after that, you'll want to look into how much it will cost monthly, and for example, get some term life insurance quotes so you can see how to work it into your budget.
What Is Life Insurance?
A life insurance policy, like this one from Allstate, is a contract between an insurer and a policyholder in which the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the insured. Its primary purpose is to provide protection to the surviving dependents after the death of the insured person, who is often a breadwinner and the main source of income of the household.
By that definition alone, you can already infer that getting life insurance for your children (as the insured persons) will not be the most practical course of action for these main reasons:
Financial Protection
Life insurance is, first and foremost, a potent form of financial protection. At the most basic level, you can essentially say that life insurance can also be viewed as income replacement for when the insured person dies. The main problem with granting children life insurance is that they are not, more often than not, a source of income for the household, which defeats the financial protection aspect of a life insurance plan.
Cost-Per-Benefit Ratio
The other reason why getting life insurance for your children is that the cost-per-benefits of a life insurance does not justify the costs that come with the policy. This is especially true given the fact that most life insurance policies for children come in the form of whole life insurance, which costs up to ten times more than term life insurance. The money spent here could be put to much better use.
But, There’s A Way To Make Life Insurance Beneficial For Your Children
These factors don’t necessarily mean that life insurance has no place in the future of your children. It just means that life insurance has a specific purpose, and it needs to serve that purpose in order for the premiums to be justifiable and rational. So, in order to satisfy the financial protection aspect, it’s important to get your main breadwinner a life insurance policy, and to have that policy cover at least 10 times your breadwinner’s income.
Whole life insurance policies for children are ill-advised, but there are ways that you can make life insurance work in the manner that child life insurance policies are intended to function. This is through adding a child rider to your breadwinner’s life insurance policy. This provides a death benefit if one of your children passes away. While it’s an unsavory thought to think about, you have to remember the main point of all this -- to determine whether life insurance for children is a practical investment.
And to summarize everything, no, life insurance for children is not a practical investment for reasons stated above, but there are work-arounds that allow us to achieve the intended purpose of a child life insurance policy while also avoiding its disadvantages.
