The primary purpose of life insurance is to replace the insured’s income. This policy helps the insured’s family make ends meet while they adjust to life without their loved one and a reduction in their household income. Whether or not to purchase life insurance for your child is a controversial topic.
Many argue that a child typically has no income to replace and therefore does not need life insurance, while others argue that there are benefits to insuring a child. The correct answer for your household depends on your individual financial situation. Read on to learn a few reasons you should consider purchasing life insurance for your child.
1. Life Insurance Will Cover Any Final Expenses
If your child passes away, life insurance will provide you with the funds to comfortably pay any final expenses. One 2017 report from the National Funeral Director’s Association states that the average cost of a funeral is $8,755, while the average cremation runs approximately $6,260.
In addition to burial expenses, you may have medical expenses to pay if your child suffers an injury or illness. A long hospital stay can easily rack up thousands of dollars of medical debt.
Unfortunately, no laws require a company to offer paid bereavement for a funeral or after the death of a loved one (though some companies do offer this benefit). Many parents need to take time off work to heal from their loss. If your leave is unpaid, this can cause your household bills to quickly pile up, leaving you in debt.
Life insurance will cover all of these costs so that you don’t have to worry about the financial aspect of losing your child. Instead, you can focus on managing your grief.
2. You Can Ensure That Your Child Has Life Insurance As an Adult
Two common types of life insurance are available: term life insurance and whole life insurance. Term life insurance is a product that provides a stated level of coverage for a specific period of time. For example, you might opt for a 20-year policy with a payout of $30,000. This is the cheapest form of life insurance.
A whole life insurance policy is more expensive, but it lasts until you decide to cancel it. As long as you pay your premium, the policy will insure your child. You guarantee that your child has lifelong insurance when you purchase a whole life policy. The insurer will not cancel the policy if your child develops a chronic medical condition that leaves him or her uninsurable in the future.
Some argue that it is highly unlikely that your child will not be insurable in the future. These experts advocate for term life insurance if you decide to buy life insurance for your child. However, if your family has a history of chronic diseases, you may decide to purchase a whole life policy for future peace of mind.
3. Some Life Insurance Products Also Function As a Savings Vehicle
You can also use whole life insurance as a savings vehicle. As you pay your premiums, the policy accumulates a cash value that varies based on your policy’s return and how long you have held the policy. If desired, you can cancel the whole life insurance in the future and receive the policy’s cash value.
Assume that your child grows up with no health conditions. At this point, you may decide to purchase a term life insurance for your adult child (rates are extremely low for healthy young adults) and cancel the whole life insurance policy. Your child can use the policy’s cash value to pay for college expenses, make a down payment on a home, or purchase a vehicle.
Need to review your life insurance needs with an experienced professional? Contact Lanham Agency today to schedule an appointment.