There is an ongoing debate whether it makes sense to buy a life insurance for your kids.
Many experts in the industry don’t seem to quite agree. While it is ultimately your decision, it pays to understand the two sides of the coin on this matter.
On one hand, an advisor claimed that children don’t need it because they don’t have their own income, a point that is surprisingly narrow-minded.
The line of thinking goes something like this: life insurance is supposed to protect income, a child does not earn an income, ergo child does not need life insurance.
Another also advised that insurance is for heirs and dependents. Since children don’t have both, therefore they don’t need it.
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Manage family risks
But there is another side to life insurance. It helps to manage life’s risk.
It isn’t just meant to replace loss of income or to bequeath something to heirs. It is also meant to actually lower the risk of bad financial impacts that a death of a member brings to the family.
A sick child can bring a lot of stress not only to the parents, but to the entire family too. While common illnesses can be covered by parents’ health plan (if you do have one) or savings, a critical illness can be a burden to your pocket particularly if it lasts for an extended period of time.
A life insurance that covers the life of the child can be a cushion in such situations. It prevents the breadwinner(s) from dipping in too much on their savings or from selling off their assets. Also, it can help them avoid borrowing substantial amount from friends, family members, or the banks.
Here are the reasons why you, as parents, may choose to buy a life cover for your child:
- To protect the family from costly medical care in times of critical illness of the child
- To take care of end-of-life expenses
- To help cope with the loss
- To lock in insurability
- To pay for any taxes
- To give the child a head start in life
Diseases of the digestive system, lungs, heart, and kidney are the top causes of death of young Filipinos. According to Ageas Protect, children’s critical illness claims came next to claims due to cancer in 2013.
Life insurance then is an option if you are worried that your child might have a high chance of getting seriously ill.
Because a sick child in the family demands time and attention especially when recovery is slow, it can address healthcare costs and loss of income because you are unable to report to work or you decided to quit.
According to the Department of Health, more deaths occurred among infants who are 28 days old and younger in a group of children who are new-born to one-year-old.
Insurance companies can provide cover for infants as young as two weeks old.
When the child has a life cover, it can help pay for end-of-life expenses such as hospitalization and mortuary. Specifically, it is a suitable product for families whose current net worth isn’t enough to cover sudden huge expenses and that are vulnerable to bankruptcy when someone gets critically ill in the family.
Coping with the loss of a child
Although children do not contribute any income to the household, their role in the life of the parents and the family can be immeasurable.
Their loss can be devastating and the members of the family may experience the ill-effects of grieving that might affect their ability to earn.
For instance, they may request to go on leave for quite some time in order to mourn. Some may suffer stress that could affect their performance at work or business. Others still may choose to quit from their job in order to recover.
Because each individual copes with a loss of a loved one differently, parents and siblings can be greatly helped when finances is the last item on the list of things to be worried about. A death benefit becomes instrumental in covering for days missed at work, need for therapy, or even loss of a job.
It isn’t about one has to die, but for those who are left behind to have a cushion in times of grief and tragedy.
Locking in insurability
Parents may consider buying cover in order to ensure that their kids are covered early in their life. This is so particularly when there is high hereditary risk that they might be uninsurable when they get older.
By buying a policy that insures them while they’re young and healthy, they no longer need to get insured or go through and then fail medical exams when they get older.
Secondly, it can also be a strategic decision as premiums are cheaper for very young people. Check with your financial advisor regarding questions about life insurance policies so you can work out the math.
It also makes sense to get life insurance for children with sizeable assets – whether earned, inherited or given – that might be taxed. Getting a cover for estate taxes can actually be a strategy.
Admittedly, there are a few children who would fall into this category including child actors, really young heirs of fortune, or those who received hugely valuable gifts such as properties.
Giving a head start in life
With the introduction of life insurance policy with investment, you can choose to give your child both an insurance and savings.
This is suitable for parents who have difficulty consistently setting aside money for their kids. Unlike other forms of wealth-building products, such as trust funds or mutual funds, premiums are not voluntary and must be paid on time to make the policy stay in effect.
The cash value of the policy can be used to fund the children’s education or give them an advantage in life. It can be used to launch a business, to work on their passion, or as a gift when they’re starting a family.
Insurance for the breadwinners
Before you open a policy for your child, it is important that you have your own health and life insurance plans.
If you can, include your children by taking additional riders in your policy or as part of your dependents that could receive coverage from your health maintenance organization (HMO). In this way, you can lower your cost and maximize your existing policies.
Lastly, don’t stay on the fence for long about whether to get a cover for your child. Planning ahead is in itself a symbol of your unconditional love. It is now best to show your love by protecting them and give them precious financial advantage in life.