Life insurance can be a confusing topic. Hopefully, you have your own policy and understand how it works. (If not, just get in touch with our Maryland life insurance agents and we’ll be happy to explain.) You may have also heard that it’s possible to buy insurance for your minor children. If you are a new or expecting parent who is trying to get ready for the future, this is probably one of the topics that confuses you the most. Why would you insure a small child who has no income? There are many reasons to do this, and today we’ll be happy to go over a few major ones.
Cover Funeral Expenses
If you have life insurance or disability insurance, you probably mainly rely on it to cover medical expenses and loss of income. So why purchase insurance for a child who doesn’t have an income? When you purchase life insurance for your children, it is mainly intended to cover the final expenses if your minor child is to pass away prematurely. Although it may sound morbid to financially prepare for your child’s death, it can save you from a major financial hit.
Consider this: a median cost of funeral with burial was $7,181 in 2014. This includes service fees, embalming, viewing, transportation, casket, etc. If you think cremation is cheaper, you are right, but not by much. The median cost of cremation with viewing was $6,078 in 2014. Although these are averages for adults, you get the idea how much funeral expenses can cost you.
Secure Future Insurability
If funeral expenses don’t seem like a financial burden to you, you may consider to insure your child for other reasons. If you purchase a permanent policy for your kids now, you get a chance to lock in their rate and have a policy that will last for their entire life. If they become ill later, start smoking or get into extreme sports, they won’t be disqualified from obtaining life insurance because they already have it. If you leave it up to your child to purchase their own life insurance when they are ready, this may not happen until their mid-30s when their chances to secure good rates will be less optimal.
Obtain Cash Value
If your child has a permanent life insurance policy, over time it may build tax-deferred cash value. This cash value can later be used whenever your child needs a lump sum of money, such as to pay for college or buy a home. While cash value can be a handy financial resource, there are other ways to save up for your child’s education or other major expenses. You could use mutual funds, trust funds or special savings accounts. Evaluate the interest rates and look at the long-term value to determine which savings method would yield the biggest return in compound interest.
Other Benefits to Consider:
- You can remain the policy owner until you think your child is ready to appreciate this investment you made for them.
- You can use the policy payout to compensate for the time off work as you grieve, counseling, to replace money spent on education or to establish a charitable fund in your child’s memory.
- You don’t need a credit check to borrow against the policy’s cash value.
If you are interested in learning more about purchasing life insurance for your minor child, give us a call or contact us online today. We will evaluate your situation and recommend whether this is a good option for you.