Life Insurance for Kids?
It's not a pleasant thought, but experts say parents should seriously consider it
When any parent sits down with their insurance provider, they want to ensure their policy provides for their kids – should anything happen to them. But what about getting life insurance in the event of a child's death?
Many parents consider the thought too macabre, but financial experts say that it's something they ought to weigh out. Even if they don't want to.
"Nobody plans for something to happen to their child," says Karen Powell, an engineering specialist and mother of two from Southfield.
For Powell, the option of obtaining life insurance came up because the benefit was offered at work. Before settling on a decision, she consulted a financial planner, who helped her decide that it was a financially-sound thing to have if something tragic happened to her children.
"In utter respect, death is going to be the biggest reason," says Keith Smith, licensed insurance agent for Heritage, a health and life insurance company located in Sterling Heights.
The main reason for life insurance is to get some money in the event of the policyholder's death, to cover funeral expenses and/or loss wages for the person who died. In the case of kids, unless the child is a superstar making a substantial amount of money, the insurance plan is more of a crutch for unexpected deaths.
Smith says most families don't prepare for such tragedies, which can leave them covering some fairly steep funeral costs, ranging from $10,000 to $15,000 – in addition to the cost of a burial plot at a cemetery.
Life insurance policies also can be a financial security blanket for when your kids reach adulthood. Purchasing an insurance policy on your child can get them an inexpensive foothold into a life insurance policy as part of their adult financial portfolio.
Policies on children, who have low death rates, are typically inexpensive. "The best way to purchase life insurance is to add the child as a rider to an existing life insurance," Smith says.
Adding a child to a life insurance policy that already exists, such as the one you have for yourself, is considered a "rider" because the second policy is tacked on to the initial policy. When adding your child as a rider, the payments for your child can be as low as $4 a month. A separate policy for your child can cost around $25 or more a month.
Smith says parents should talk to an insurance agent to see if getting a life insurance policy on their children is a good fit for them. Beware of mailings that could be scams trying to scare you.
"Talk to somebody and tell them about your situation," Smith says. "Just talk to a real person instead of responding to something in the mail."
Be sure to discuss your family size, income and age of your children, and express concerns you may have about getting a policy.