Whether children should have life insurance or not is a contentious issue. This is primarily because there are few reasons to do so. Some financial advisors believe that life insurance should act primarily as household income protection. Insuring a child or even saving for their education, at the expense of the parent’s financial plan, is a disastrous strategy. To acquire life insurance for children so that they pay lower premiums later is a fallacy in some instances. The major reasons for this course of action being regarded as superfluous are as follows:
1) Final expenses for children do not constitute a severe financial risk-
Coverage of final expenses is often cited as the main reason to purchase life insurance for a child. In a normal life insurance calculation, final expenses are the main consideration when a child is concerned. A child’s unemployed status is a major factor in life insurance being superfluous. This is not necessarily the case for housewives because housework has value and a replacement cost can be associated with it. Insurance is meant to cover severe risks. Final expenses for a child are not sufficient enough to cause a financial crisis.
2) It is not a given that children would have lower premiums than adults over 18.
A few companies use standard premium rates for all children under the age of 18. I know of a case where the premium rate for anyone aged 17 and under is higher than that of a 19 or 20 year old. Therefore, it is not always the case that the younger you are, the cheaper the rate would be. This may seem to be counter-intuitive. However, the actuaries in those companies have recognised that it would be a greater risk to insure anyone below a certain premium rate. Aside from this, a 1 year old child cannot be assessed properly. If insurance on children was left unregulated, the insurer would be accepting unknown risks. For some insurers, using a slightly higher rate is one way of limiting those risks.
3) A child cannot continue a life insurance plan on the death or disability of the payer.
Some parents believe that life insurance is the best way to financially protect a child. A family protection plan that covers medical expenses would be a superior means of accomplishing the same objective. Insurers have different plan structures, such that it may be possible that other benefits could be included. Before purchasing life insurance or even an education plan for a child, check that provisions are available in the event of death or disability of the payer.
4) A child would be protected only if the parent has a sound financial plan
Sometimes mention is made of financial planning for children. A financial plan for a child is a luxury. Insurers generally examine insurance applications on the lives of children very closely. It is a strategy that sometimes appears very suspicious in cases where the parent is inadequately insured. Insurers calculate this based on the income of the parent. I know of a case where a parent had $75,000.00 life insurance coverage and wanted $150,000.00 in life insurance for the child. No matter how noble the intention is, it appears as if the parent is attempting to profit from the death of their child.
If you are attempting to save someone from drowning, you have to ensure that you do not put yourself in danger in so doing. Otherwise, two people would be likely to drown instead of one. This analogy can be applied to life insurance where parents and children are concerned. The best way a parent can protect the child is to ensure that their own financial plan is in order. The chance that the child’s insurability would diminish provides the best possible reason to insure a child. Even that reason is low-priority. Lower premium payments constitute a dismally weak reason to purchase life insurance for your child.