Should I Get My Baby Life Insurance?
Yes. Obtaining life insurance for kids can provide them coverage and benefits early in life at a lower cost than waiting until they are older.
For some people, life insurance can be an excellent source of financial security. Being a parent inevitably requires you to make a number of difficult decisions for your child. From the moment your child is born, you want them to be secure. One of the most important forms of security is financial security, but knowing what that requires is not always entirely clear.
For some people, life insurance can be an excellent source of financial security. A good life insurance plan can provide your family with a necessary source of income that can cover funeral expenses and the cost of living. It is obvious why an adult with a family would want to have life insurance. But the question that remains is, when is the appropriate time to buy life insurance? Is there such a thing as buying life insurance too soon? Should you purchase life insurance for a newborn baby?
What are the best life insurance plans for babies?
According to recent surveys, about one in five parents/grandparents have purchased life insurance coverage on their kids. This means that there are currently millions of children’s life insurance policies in existence. While the Gerber Life Insurance Company is perhaps the best known provider of juvenile life insurance in the industry, permanent life insurance policies can be purchased from nearly all other life insurance companies as well.
Though it is seemingly impossible to compare all potential life insurance providers at once, two of the companies you may be interested in learning about are the Gerber Life Insurance Company and United of Omaha.
Child Life Insurance Rate Comparison
Rates for a 6 month old male in Alabama for $25,000 in coverage
|Company||Issue Ages||Min. Coverage||Max Coverage||Price per Month|
|14 days – 14 years||$5,000||$50,000||$8.50|
|14 days – 17 years||$5,000||$50,000||$15,70|
What are the potential benefits of buying life insurance for a baby?
The chances of a healthy baby dying are statistically very low. Furthermore, a baby is obviously not an individual who has to worry about providing for any dependents in the event of their death. Though funeral costs and future income are among the primary reasons an adult would want to buy life insurance, there are other reasons as well that are uniquely applicable to children.
The ability to qualify for life insurance depends upon a number of different conditions. An individual’s health and age can tremendously impact their ability to qualify. Naturally, when someone is a baby, they are the youngest and they will ever be.
Babies have the longest amount of life left to be lived. In the eyes of an insurance company, this means they will not have to “cash in” on their policy for a very long time. Because babies are such low-risk life insurance policyholders, they are essentially guaranteed to qualify for nearly all possible life insurance policies (usually after they are 14 days old).
The lowest possible monthly rates:
In addition to being able to qualify for life insurance in general, babies are also able to qualify for the lowest possible rates. One of the reasons that many parents consider getting life insurance for a newborn baby is that they have a unique opportunity to “lock in” the lowest monthly rates on the market.
By having these rates locked in, your baby will be protected from rate increases that will inevitably happen as they get older or as their health begins to worsen over time. Not only will the monthly cost of life insurance be less for an individual who qualifies for a plan early in life, but the total cost of the plan might end up being less as well.
A potential savings vehicle for the future:
Life insurance is about more than just financial security. Life insurance can be a very practical vehicle that enables financial growth as well. In fact, many individuals buy life insurance because they will not only be able to provide for their loved ones in the event of their death, but because permanent life insurance policies can generate a respectable return on investment.
The savings component of whole-life (permanent) insurance policies is tax-deferred and can often outperform other conservative saving vehicles. Depending on the specific policy you end up choosing, life insurance can be used a vehicle that can help save for your child’s college tuition or other future financial goals. The ability to be saving while also staying protected makes life insurance a particularly attractive financial asset for many parents and grandparents.
Maximum amount of time for growth:
The savings component of whole-life insurance is known as cash value. As is the case with most financial assets, cash value is something that increases over time. Naturally, the longer you have a given life insurance policy, the more amount of time you will have to let your policy’s cash-value grow. By purchasing life insurance for your newborn baby, you will be able to maximize the amount of time their cash value can increase.
Though there are certainly many reasons to buy life insurance for your children, there are of course also some reasons not to buy life insurance for your children. When evaluating the pros and cons of children’s life insurance, it is important to consider the alternative options you might have available.
What are the costs of buying life insurance for a newborn baby?
Your child probably doesn’t need life insurance for the same reasons you might, so when deciding whether or not to invest, you should compare the potential return on investment to other possible savings vehicles. While the aforementioned benefits of buying your child life insurance—insurability, low rates, and ample time for growth—are certainly true, these benefits are not without costs.
Even if the monthly rate you are paying for your child’s life insurance plan is low, every dollar you spend on life insurance is a dollar you cannot spend somewhere else. With more investment opportunities to choose from than ever before, you may not want to limit your potential for growth in something that will not pay off for a very long time.
One of the most notorious characteristics of whole life insurance is that it takes a notably long time for cash value to really accumulate. For example, a typical $200 per month policy will grow to about $88,000 in cash value over 20 years. Considering you paid a total of $48,000 in premiums over that time, that is a net rate of return of about 4.7% per year.
Almost all of the growth in cash value takes place in the last ten years of that period. If you were to look at the same policy in year 10, even though you would have already paid $24,000 in premiums, you would only be able to access about $27,000 in cash value. Once you do the math, you will realize you will have generated an annual rate of return of 1.94%–which is typically less than the annual rate of inflation.
Some varieties of children’s life insurance have special options that make it easier to borrow from the cash value when it comes to paying for college, but these options still pay out notably less than a strong 529 college savings account will. If your only goal in purchasing a policy is to help pay for college, you may want to consider investing your money elsewhere.
Clearly, the cash value payoff is something neither you nor your child will be able to substantially benefit from right away. If you were to take the same $200 per month and invest it in stocks, real estate, or numerous other alternative assets you could generate substantially greater returns that you will be able to access more quickly.
So should you buy life insurance for children?
When it comes to the question of should you buy life insurance for your kids, there isn’t one universal answer. There are several variables involved in answering such a question, and unfortunately, many of these variables are things that are beyond your ability to know as a parent.
When will my child need to access to the cash value of their life insurance policy? How much more money could I make by investing in the stock market? How much coverage will my child need when they are a parent with children of their own?
Because you cannot foresee the future, these questions are impossible to answer. But generally speaking, while it is not a good idea to invest all of your money into a life insurance policy, it could certainly be a good idea to invest some of it. By adhering to the well proven principle of financial diversification—protecting yourself from risk by investing in a wide variety of assets—your child can potentially benefit from both the security and growth a good life insurance policy can provide over time.