Life Insurance policies for children are sold purely on emotion and not on true need. The advertisements and sales agents will use lines like "if you love your child..." you will protect them with a life insurance policy. They will also explain how inexpensive life insurance is for children. There are a couple of problems with this.
While the commercials and sales agents may appeal to your emotions, the financial facts are that a loss of a child will actually relieve you of a financial commitment. That's not trying to make light of the emotional devastation that comes with a death of a child for which nothing can compensate. The fact, however, when looking at it purely from a financial perspective is that a family will not have to spend as much money when they no longer have a child to care for. It cost less not having a child than having one.
Another ploy is that children's life insurance is cheap. It is inexpensive compared to adult life insurance because, plain and simply, children rarely die. While the numbers that the sales agent puts together may make children's life insurance sound like a great deal, take the time to run what you'd have if you instead invested the exact same amount used on the insurance fees into a Roth IRA and you'll find the true cost of purchasing this type of life insurance.
When purchasing life insurance, it's important to remember that its main purpose is to replace an income that is lost when one dies. A child rarely has an income. Unless your child is a child TV star or the the main source of income for your family in some other way, there is rarely a need to have life insurance for him or her.
The Life Insurance for Children Debate
Wednesday March 8, 2006
I get a good amount of disagreement from other insurance agents about purchasing life insurance for children. Yes, for some people, the life insurance they bought for their child did pay off later. Obviously though, children do not have dependents that need financial care once they are gone. Since life insurance is designed to care for loved ones that depend on you once you are gone, it does not make sense to purchase a life insurance policy for a child.
This does not mean that the risk is non-existent. We could of course insure everything since there is a risk of losing everything, but we need to determine if that risk is high enough for our personal situation to insure. By this, I feel buying life insurance for children should not be a routine insurance purchase. (Createwealth8888: so if you have plenty of spare $$$, by all means go and buy and made yourself an asset to your child). On the other hand, life insurance for parents should be a routine insurance purchase since parents do have loved ones depending financially on them (their children).
There are other insurance choices that should not be routine insurance choices. The article Don't Buy Insurance You Don't Need reviews types of insurance policies that should not be purchased routinely. Again, this does not mean that by purchasing these types of insurance you will never use them, you may. The risk is so small though, that your money could be spent more productively on such things as savings or investments.
By Bobbie Sage, About.com Guide to Personal Insurance since 2002
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