The idea of buying life insurance for your child can seem morbid. In fact, discussions about any type of life insurance – for yourself or your child – can be difficult and it’s a topic that many parents would prefer to avoid altogether.
But as uncomfortable as it may be, it’s a conversation every family needs to have, says Nicole McCoy, an agent with Michigan Term, a life insurance company in Troy.
“Part of being a parent is making difficult decisions, preparing for the future, and protecting your children as best you can. Sometimes it means an uncomfortable conversation,” she says. “And as a mom with young children, it’s the worst conversation I’ve ever had. You don’t want to think about anything happening to your babies.”
But still, “it’s important to consider all your options,” McCoy says.
Among those options is buying life insurance for your children. Is it necessary? Should you consider it? It’s a personal decision for each family, she says.
For most parents interested in insuring their child’s life, a children’s rider on the parent’s policy is the best option. A common coverage amount for a rider is $10,000, which doesn’t add much to a parent’s premium, McCoy says.
“You still have a death benefit in case something were to happen, but you’re not taking a full policy out on a child,” she says.
Other parents choose to apply for a full, permanent life insurance policy for their children. These policies would have cash value in the future and are sometimes seen as a sort of savings account for the child, McCoy explained.
“That’s not something we often recommend,” McCoy says. “We think that there are also alternatives to that that should be considered, such as 529 plans and things of this nature.”
Other parents seek out this type of policy as a way to lock in insurability for children who may have a predisposition to certain health problems, for example.
“The biggest reason is to ensure insurability,” she says.
Parents also have the option of taking out a small policy when the child is young and then increasing the amount in the future – another way to avoid the underwriting process down the line.
Parents who purchase a rider for their child should know that these usually cover the child until the age of 25, McCoy says. At that point, the rider can be converted and the new policy transferred to the adult child.
Even with all of the options in mind, what most parents really want to know is this: How can I best protect my family? The answer to this question, McCoy says, is a little less individualized.
“The most important way to protect your child with insurance is to make sure the parents are adequately covered,” she says. “I wouldn’t recommend life insurance for a child unless parents have addressed their own personal insurance needs.”
That means making sure your family will be able to cover house and car payments, other debts, the cost of child care and more in the event of a parent’s death. Concerns about a child’s future insurability are less important.
“Their biggest risk is if their parent were to pass away,” McCoy says. “Unfortunately we can’t replace people, but we can replace money. That’s what we’re trying to accomplish.”
It’s especially crucial for young families who have many years of high expenses ahead.
“Studies have shown that most people are underinsured. They don’t have enough,” McCoy says. “If you’ve got a 3-year-old and you’re making $50,000 a year and you have a $250,000 policy, you should not be talking about insurance for your kid until you buy more insurance for yourself.”
The policy in that example would only provide five years of income replacement for the family, McCoy added.
“What is the parent or guardian going to do when five years worth of income is exhausted? The primary goal is to make sure that the child can make it through to adulthood,” she says. “If all of those needs were adequately covered, then we can talk about making sure that the other secondary needs are covered.”
The best way to find a life insurance policy that’s right for your family is to work with a reputable agency such as Michigan Term, where local agents are available over the phone, via email and in person to talk through your options. Michigan Term also lets customers compare quotes from multiple big-name companies like Nationwide and MetLife.
“You have a lot of options when you deal with a broker who represents multiple carriers and multiple products,” she says. “It’s important to have someone help answer the questions and show you all the choices you have available to you.”
For more information, visit michiganterm.info or call 888-242-9644.