Want to start a public riot? Walk up to someone and tell them you bought life insurance for your kids. Between the arguments over the intelligence of your financial investment and the “bad parent” accusations that are bound to come rolling your way, you’re in for hours of fun.
But who’s right and who’s wrong? Should you buy life insurance for your kids? Or is it just another bill you don’t really need to pay?
Why People Buy Life Insurance for Their Kids
When I first heard companies were offering life insurance policies for kids, I figured it was one of those “just in case” sort of things. You know, just in case they were in a car accident. Just in case they developed a condition that made them uninsurable later in life. Just in case their boss didn’t offer life insurance when they hit the workforce.
Do people buy kids’ life insurance for all of these reasons? Absolutely. But I was surprised to find out that wasn’t the only reason people signed on that bottom line. It wasn’t even the primary reason. A lot of parents looked at it as a way to secure their kids’ financial future. By being able to cash in their policy, or take out a loan against it, the kids had untapped financial resources sitting at their fingertips when they got older. They could pay for college. They could pay for a car.
As a parent, you should always take a look at what the insurance policy is going to cost you. For instance if you live in UK, you can compare prices of these policies. Just have a look at how much does life insurance cost uk, which is going to give you a fair idea of the coming expenses.
They could not be broke.
So Is It a Good Idea?
Knowing WHY people buy life insurance for their kids is only half the battle. Once you understand their logic, you have to figure out if it’s sound or if they’re just throwing good money into an idea with less substance than a Tanzania money scam?
You know, the one where random person (X) in Tanzania croaks and leaves you part of their fortune for the extremely low cost of wiring the money to the US? Yeah, that one.
I’m not a financial planner, so I can’t offer any insight into the investment wisdom of life insurance for kids. Maybe after another year or two of research, but not right now. I can tell you that most of the wisdom floating around out there suggests that there are better options to fund your children’s future (and their education) than life insurance, so it’s not usually your best bet UNLESS:
1) There’s a family history of conditions that could render your child uninsurable in the near future.
2) Your child has a condition that will make it difficult for them to get life insurance on their own later. (It’s easier to insure a child who has a heart problem than an adult who has one. Believe me, I know!)
Bottom line, and I actually found this quote somewhere, life insurance is not an investment. Period. When you take out a life insurance policy, you’re doing it to secure the future for the people you leave behind. You know, after you die. That means that unless circumstances dictate you really need insurance for your child, you’re better off investing in a 529, buy a life insurance policy for yourself worth as much as humanly possible and hoping your kids learn how to clean their toys off the stairs.