Does purchasing life insurance make sense for a child? This question sparks debate among parents and grandparents, but there are compelling reasons to consider it. Child life insurance is a whole life policy that is specifically for a minor. Its premiums are lower than those of an adult and the policy is generally owned by the adult who purchases it until the child reaches the age of maturity.
It may feel counterintuitive to purchase life insurance for a child, but there are several factors to consider when deciding if this is right for your child or grandchild:
- Lifetime Coverage: One of the key benefits of life insurance for a child is its longevity. By maintaining premium payments, the policy can offer protection for the child’s entire life. As they grow into adulthood, they can leverage the policy to safeguard their own family’s financial future.
- Durability: Unlike conventional gifts that depreciate or wear out over time, a life insurance policy retains its value.
- Accrues Cash Value: Unlike most gifts which lose value over time, a whole life insurance policy accrues cash value annually. This cash reserve can serve multiple purposes, such as contributing to a down payment on a home, funding higher education, kickstarting a business venture, or supporting a comfortable retirement as insurance needs evolve.
- Tax Advantages: Life insurance policies come with tax benefits. The cash value accumulates tax-deferred, and in many cases, accessing this cash value doesn’t incur tax consequences. Furthermore, the death benefit paid to beneficiaries is typically tax-free. It’s advisable to consult with a tax advisor for detailed information on tax implications.
- Lower Premium Rates: Generally, life insurance premiums rise with age. However, with whole life insurance for children, premiums can be locked in at the child’s current age, resulting in significantly lower premiums throughout their life.
- Future Insurability Guarantee: Once the policy is in force, coverage cannot be terminated as long as premiums are paid as required. Additionally, including a Policy Purchase Option (PPO) Rider allows the child to purchase additional coverage at specific intervals, regardless of their insurability at those points in time.
In summary, while the idea of life insurance for a child may seem unconventional, it offers long-term benefits that extend well beyond childhood. From providing financial security to building a cash reserve, the advantages are manifold. It’s essential to weigh these factors carefully and consult with us to determine if it aligns with your family’s goals and needs.