September 16, 2008

Life Insurance is NOT necessary for children.

You may have seen TV ads for life insurance for babies. The one I've seen is the 'Gerber Grow-Up' plan.

I got a quick quote on their site and the rates are $36 a year for $5,000 of coverage to $360 a year for $50,000 of coverage. It is a whole life policy. Whole life policies in general are not a good buy.

But the bottom line is that you do not NEED life insurance for an infant or child. If a child passes away then you do not have to replace their income and you have no financial debts to worry about.

The only reason to even think of life insurance for a child is to take care of funeral expenses. But even then buying life insurance is not a good financial bet. Average funeral costs are $6500 in the USA and can be had for as little as $800. According to CDC mortality rates, the risk of dying before age 18 is about 1%. Given the low risk and potential costs, a premature death of a child is something that you should self insure for.

2 comments:

  1. Disclaimer: I am a director of financial planning at a weatlh managment firm. My broker-dealer is a huge insurance company. So take what I say with a grain of salt lol

    1) You don't need to replace income? I am pretty sure ANYONE would take time off from work if a child passes away?
    2) It is a savings tool. That in 20 years depending on the death benefit could use for college, with having the added protection above.

    I do advanced planning all the time for extremely wealthy clients that MAY include life insurance on a younger person.

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  2. My Journey,

    Good point about people needing to take time off if a child passes. But its still a less than 1% chance anyone would have to go through this with a child. I think that in the unfortunate case that it does happen you should be able to cover your bereavement leave with employer provided time off, vacation time and your emergency fund.

    Whole life insurance policies are usually not the best savings tool. For the Gerber Grow up policy they say that your cash value will be equal to 100% of your premiums. So thats a 0% return.

    Jim

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