This type of insurance is especially useful for children who have a medical condition. If they attain child life insurance when they are young, they will have a better chance of getting full life insurance when they reach adulthood through the same company. However, this strategy will have varying success according to the company and the policy chosen.
If the child insurance policy is part of a whole life insurance policy, the child will be able to get insurance benefits after they reach the age of 18. However, not all child life insurance policies are whole life insurance. Some are term, just like in the case of adult policies.
Term Child Life Insurance
Most often, term life insurance policies for children are taken out by parents who know their child is physically in peril. If a term child life insurance policy was taken out on a healthy child, the term would expire, all premium payments would get paid but there would be nothing to show for it because the child survived healthily. Term life insurance for children only makes sense for children who are physically compromised in some way.
Child life insurance that goes according to a term structure is also not able to be cashed out before the maturation of the policy. Term life insurance for children is not the same as permanent life insurance coverage. However, term life insurance is much cheaper than whole life insurance policies for children with genetic abnormalities or defects. If a parent expects their child to die within the term, an award amount is almost guaranteed. As long as the applicant is honest about their child's medical conditions, the award amount would be paid to the beneficiary.
Payments for this type of insurance are usually very low. The chance of a child dying, according to the mortality table statistics, is low as well. Children just aren't expected to die early on in their life. The premium payments of the coverage will reflect this by being lower than usual.
Whole Life Child Insurance
A whole child life insurance policy will allow the family to borrow against the policy in order to pay for things like school and various other expenses. Acquiring child life insurance for a child at a very young age can also better the chances that the child will be eligible for future insurance coverage with the same company at a cheaper rate.
Many experts agree that this type of life insurance doesn't make a lot of sense to the families who take out the policies. Instead, a savings account reserved for the child is generally recommended. If families start saving early enough, they can save up a large amount of cash in the savings account to help pay for school and other expenses.
Child Life Insurance – A Good Idea?
The argument rages on and many people are asking questions about whether or not child life insurance is a good idea. Some experts argue that buying a whole life insurance policy for a child will ensure that they are always covered by insurance, safe against the financial perils of their child getting sick with some kind of permanent illness later on in life. These illnesses would make them otherwise uninsurable but because the insurance policy is a whole life insurance policy, some policies will guarantee the coverage won't be taken away in the event of such illnesses.
However, further arguments generate a good point. The loss of your child would actually remove a significant amount of continued financial burden. Because life insurance policies for children are usually so small, the award payment is generally not worth it unless the coverage is for whole life. Term insurance has the least chance of paying out because children are generally expected to live a full life expectancy.
On the other side of the argument, many people agree that it's a waste of money to invest in a child so early on. The chance of mortality within a child's age group is very minimal. Paying premiums so early on just wouldn't make financial sense.
Only 15 percent of people under the age of 18 have life insurance. This percentage statistic has stayed the same for over ten years. Also, coverage amounts for children are usually very small, near the $5,000 mark.
Many people who decide to use the whole life insurance coverage designed for children, are parents of children with less than perfect health. These people usually purchase term life insurance coverage, figuring that their child has a significant likelihood of reaching death before the policy expires.
Alternatives
But imagine, if you will, the possibilities of investing the money in some other way, other than child life insurance. A Roth IRA may be money better spent. Your child has a much better statistical chance of surviving than dying at such a young age and a Roth IRA would earn them much more to pay for future expenses.
Future insurability is also an issue that needs to be talked about. Renewable insurance policies with the option of converting to whole life coverage make the most sense. When your child reaches a certain age or when the insurance policy dictates to be such, it will automatically convert into whole life insurance coverage. This whole life insurance policy will carry a higher premium amount but since your child survived the term agreement period, it will be converted to a whole life policy with cheaper than normal premiums.
Those are just a few of the things to think about when considering child life insurance. For most people, it doesn't make good financial sense. However, if you are expecting your child to develop an illness or the probability of such is there, then taking out a life insurance policy on them may make better sense.