The Cons Of Child Life Insurance
This article was originally titled “The Pros And Cons Of Child Life Insurance,” but I changed it when it was pointed out to me that I didn’t present any pros.
Most child life insurance policies are sold by tugging on the heartstrings of the parents, grandparents or guardians. The circumstances that would justify a separate life insurance policy on a child are very few and far between. A close look at what exactly life insurance is and why it exists will help put child life insurance into perspective (and illuminate why many people think it’s a scam).
What Life Insurance Is Good For
Life insurance is a risk management tool, despite all the bells and whistles insurance salesmen love to bring up. The risk life insurance manages is the economic losses incurred by the premature death of the covered individual. For example, if a man earns $40,000.00 annually, he can expect to earn $1,600,000.00 during his working years from age 25 to 65 (assuming he never gets a raise). If this man has a wife and minor children, they are dependent on his earnings. If he dies at age 35, his family will lose $1,200,000.00 of his expected earnings. Life insurance will offset all or some of that loss by paying the beneficiary the face value of the policy. If the face value of the policy is $1,000,000.00 the survivors will only lose $200,000.00 instead of $1,200,000.00.
Child Life Insurance Doesn’t Fit The Mold
Most minor children do not earn very much money, if any at all. People enter into motherhood and fatherhood to share their lives, wealth included, with their children. A separate life insurance policy on a child would be a waste of money (even more so than mortgage life insurance). The parents would be much better off adding their children to their own policy and establishing a trust fund for their children.
“Wait, so maybe the kid is a child celebrity with a multi-million dollar income.” Even then, a separate child insurance policy would be a waste unless the child can be expected to continue making money into adulthood and is the family’s primary breadwinner. The death of a child is a very tragic event for the parents, other relatives and family friends. The losses are emotional, however, not monetary.
A Red Flag For Insurance Fraud
This leads to another reason not to buy child life insurance. In the early days of the life insurance business, a few parents would insure their children in the hopes that they would die soon and collect the policy’s face value. In fact, some parents would insure nonexistent children then report their deaths for the insurance proceeds. Occasionally, a parent would actually kill the child for the money. The insurance companies discovered some of these fraudulent acts and took action to curb the abuses. If a child with a large insurance policy whose only earnings were from a paper route or mowing lawns were to die, the beneficiaries could be investigated by the insurance company or even law enforcement, depending on the cause of death.
In summary, a life insurance policy on a child is rarely a good idea and usually a complete waste of premium dollars. Insurance dollars should be spent on the parents first and then a small amount on the child. Parents would be much better off by establishing a savings account for the child’ s future needs. A life insurance policy is not a good way to save for a child’s education.
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I am going to have to disagree with you, and I don’t think you posted ANY of the pros.
I am not sure the amount needed (and I don’t have children yet), but if my kid dies, I couldn’t imagine working. Could you? How long would you take off? How long would you need to replace your income for?
You may want to check out:
http://www.myjourneytomillions.com/articles/buying-life-insurance-on-a-childs-life/
http://www.myjourneytomillions.com/articles/buying-insurance-child-part-replying-email/
I could certainly keep working. I might take a week or two off, sure, but millions of people around the world do it every day. I suppose if you think you would take a long time off work, you should buy insurance.
I would like to counter the views you have expressed, in favor of child life insurance policies. I don’t deny the policy can be misused in the ways you have outlined above. However, I do think there are circumstances when it does make sense.
First, if you insure your child, he or she will be allowed to convert it into an adult policy at very affordable premiums. Second, if you have a family history of a certain disease like coronary disease, diabetes, etc., your child may possibly inherit it in future. A child life policy makes sense here because should your child be diagnosed with the illness anytime in childhood, or adulthood, he or she would already be insured, and will effectively avoid the hassles that come with buying a new life insurance policy when one has health problems.
With the sophisticated crime solving and law enforcement measures of today, I personally feel that there is limited scope for misusing a child’s policy.
For more information on term life insurance visit http://www.accuquote.com/
Denise
I would like to say at least have insurance to cover funeral costs and maybe leftover medical expenses. I agree with Denise also. The chance of an illness is always there. Then what? No insurance or high premium insurance is the only choices. Furthermore although family history increases the chances of heart disease, diabetes, etc., it doesnt discriminate. Anyone can get these illnesses.
I believe high-premium insurance as an adult is a better solution.
Great review covering the pros and cons of life insurance for children. Enabling parents to purchase guaranteed insurability riders for life insurance are what some parents do to prevent the child from not being able to buy life insurance if they have an illness or other disease later in life that would prohibit them from qualifying for insurance. Obviously this makes sense but no one knows the future and parents should always seek the advice from their trusted financial advisor or licensed insurance agent about their options.