Saturday, March 05, 2016

3 Reasons to Buy Life Insurance for Children (or Grandchildren)

During enrollments, employees are given the opportunity to buy group term and sometimes whole life insurance for their children and grandchildren. There are a lot of different opinions out there about whether you should buy life insurance for children or not. I thought I'd spend some time talking about three reasons you should buy life insurance on kids.

Reason #1 - In Case The Worst Happens

If the worst happens and a child dies, unfortunately the cost of a funeral is still a big chunk of money. Sometimes people don't buy life insurance on their kids because they "don't want to jinx them" or "don't want to think about it".

Over the years, though, I've talked first hand with people who have lost children due to accidents and medical conditions. These people have gone through a horrible time. But the consistent message I've heard from all of them is the need for life insurance on children in an amount that's at least enough to cover a funeral.

Just in my own community, I've witnessed little collection buckets at the gas station asking for a dollar or any contribution that could help pay for the funeral for a lost child. It's sad enough that people lose children let alone that they also have to try and raise money to pay for a funeral.

And all you have to do is look through the Funerals, Memorials and Tributes category to find real life examples of just how real the need for life insurance is if a child dies.

I found three families who needed money to pay for funerals in just a couple of minutes of searching.

Families like that of eight year old Kyra Cundiff who died in an accident with her mom, Duncan Kennedy who died from a chest infection and Baby Brooklyn who died suddenly.

All of these fundraising efforts on reinforce the financial realities behind the need for life insurance on children.

Dependent group term life insurance for children is so cheap, usually under a dollar a week, that it just makes absolutely no sense to waive it in my opinion. Yet, I still see people decline a dirt cheap .89 cent deduction to get life insurance coverage on their kids which is crazy.

I always tell people don't let that be you. Chances are you'll never need to use it and when you don't use it, you've hardly spent anything. But in the unlikely event you do need it, at least it's there.

Reason #2 - Your child is disabled, has a chronic medical condition or takes any kind of medication

The second reason to get some life insurance at work on your children is if they are disabled or have any kind of medical condition that would prevent them from getting life insurance on their own.

Because there's usually a window of time to get life insurance coverage on a guaranteed issue basis with no medical questions asked through employer sponsored plans, it make sense to take it - and to take the max guarantee issue available.

Realize too, if your child is on some sort of medication, that even if your doctor says it's no big deal that it is a big deal to the insurance companies if you have to answer medical questions to get a policy.

I know a lot of times, parents are like, well, they just have asthma or they are on medication for let's say, attention deficit disorder. While doctors minimize these conditions and they are manageable, it's easy to think that insurance companies would feel the same way as the doctors.

Insurance companies don't feel the same as your doctors do and often turn children down or charge them a much higher rate than someone who doesn't have have those conditions or who doesn't take those medications.

That's why it's important when a guaranteed issue offer comes along to lock in coverage, especially whole life coverage that you can always keep in those situations. And that would apply to any family member, not just kids.

Reason #3 - To lock in future insurability in case a medical condition develops later

My final reason to buy life insurance on children is to set them up with life insurance in the future. This can be done in one of two ways.

The first way is through the use of a term rider with a conversion option. Many dependent term life insurance and whole life insurance term life riders are convertible without any medical questions. These conversion are often a multiple of the base amount. A $10,000 term rider might end when a child turns 26 years old but if you convert it before it expires, you might be able to lock in a $25,000 to $50,000 whole life policy for a child down the road.

This would be important if you have a child develop a medical condition when they get older. I know personally, my son developed Type 1 Diabetes at the age of 11. So having a term rider that I can convert down the road would be a valuable option before it expired.

The second way is to buy a decent permanent whole life insurance policy when they are young, to lock in enough that would pay for a funeral when they are much, much older. The cost is much lower than if they waited.

What About Buying Life Insurance On Children To Save For College?

One of the common questions I get is about buying whole life insurance policies on kids to use the cash value to pay for college expenses down the road. I'm not a big fan of that. I think the reason you buy life insurance is in case the worst happens.

For college savings, use a saving vehicle like a savings account or depending on the investment horizon - mutual funds. I wouldn't use life insurance for that purpose.

I think it makes more sense to recommend that parents have enough life insurance in force to pay for college if something happened and one or both parents died.

What About Buying Life Insurance For Your Grandchildren?

I feel the same about life insurance for grandchildren as I do about life insurance for your children. So if you are a grandparent, I'd probably go ahead and insure your grandchildren through work in case your children either forget to plan for it or you are responsible for taking care of them.

Over the years, I've seen many situations where the grandparents had to pay for funerals for children and they used the life insurance they got when I worked with their employer.

Keep in mind that unless you have adopted your grandchildren, they might not be eligible for the dependent group term life plan at work. However, if your employer offers an option to purchase whole life insurance through their suite of workplace benefits, that it's more likely you could do that.


Those are my three reasons you should buy life insurance for children. If you don't have any life insurance on your children or grandchildren, I'd try and take care of that the next time you have a chance.

How do you feel about getting life insurance on children? Let me know in the comments.

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Michael is a champion of guaranteed issue for employees in the workplace. He's been an insurance agent since 1992 and has worked with thousands of employees.