Life Insurance For Your Children

September 3, 2020
LIFE INSURANCE

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A life insurance policy is a guarantee of financial stability for your loved ones once you have passed. While having one on yourself is wise, taking out a life insurance policy on your children or grandchildren may not. The insurance industry has done a good job convincing you to get a policy on your kids with some smoother talking points. One angle is that a child life insurance policy premium can be cashed out for college once they are older.  But what isn't mentioned are the fees associated with life insurance policies usually eat away at the rate of return, meaning you're better off putting the life insurance premium in an interest drawing savings account if the goal is to cash out the policy for college. Another angle is to lock in a child's insurance policy in the event a medical problem develops early in life that would make them uninsurable. While that is a valid reason and concern, the likelihood of that occurring is low. Plus the payout of these policies are generally low if being relied upon to help cover expenses once that child becomes an adult. In the event of a child’s death, a life insurance payout could pay for funeral expenses, family counseling and medical bills and provide money for the family to get by if the parents need to take leave from work. However, the odds of a child dying are very slim. A smarter financial move than buying life insurance is to stash money into an emergency fund, which could be tapped for any type of crisis. In many cases, you can get a rider on your own life insurance policy for around $60 a year in the event your child dies that would cover those costs.  While a child life insurance policy can indeed be helpful, know what it covers and what fees are associated with it in the event you, or your child, wishes to cash it out.  For investment, there are 529 plans for education, Rota IRA and custodial savings account that many financial planners say are better than relying on an insurance policy.

SOURCE: Nerd Wallet

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