Weighing the Advantages and Disadvantages of Child Life Insurance

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Although many parents would be loath to think about it, there are child life insurance policies available to help cover expenses in case of a child's death. However, many of these policies can be used as a way to save money for your children's future as well. By buying into certain policies, you can help provide for their education or future needs.


Types of Children's Life Insurance

Much like there is for adults, there are two basic types of plans for child life insurance, term, and whole life insurance. The type of coverage you choose for your child will depend on factors like their age, your income, any investments or savings in your child's name and their life circumstances.


Term Life Insurance

This type of child life insurance plan is the simplest and usually least expensive one you can buy. A term life insurance plan is paid into for a term of 20 to 30 years and, if your child were to die during that term, you would receive the full amount of coverage, even if they are a young adult when they pass away.



Whole Life Insurance

A whole life insurance plan is more complicated, and it is a more expensive type of plan. If you buy your child a whole life insurance plan, it covers them for their entire life, as long as the premiums are paid. When they are a minor, you will receive the benefit if they do die. However, once your child becomes an adult, the policy will transfer to them.

In most cases, whole life insurance policies can be used as an investment tool. Unlike other investments, such as mutual funds, the cash value of your child's whole life insurance plan is protected. This means no matter what happens with the markets; the cash value of the plan will not be affected. In addition, the cash value can be withdrawn and used for any purpose without you or your child being taxed or penalized.

Some companies have child life insurance plans specifically designed as an investment tool to help build up savings for them. These plans are like other whole life plans in that they revert to your child when they turn 21. They help you plan for your child's future by building cash value, with some plans offering to automatically double the cash value when the child turns 18.

When you buy a whole life policy, your child will always be covered by insurance no matter what happens to them. If they develop a chronic illness or disability, they will not have to worry about being turned down for life insurance because they will already be covered.


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Is Child Life Insurance a Good Idea?

Some investment counselors will advise against buying a child life insurance plan claiming that isn't needed, and it is a waste of money. Most adults can add coverage for their child by adding a rider to their own life insurance policies. The rider will generally cost less than a premium for a separate child's plan. The rider will help cover funeral expenses if something does happen, and your child passes away.

Many investment counselors do not like using whole life plans in general as investment tools. Instead of putting money into a whole life plan to build cash value, they usually advise putting money into other investments like mutual funds, certificates of deposit or IRAs. There are investments designed specifically to help save money for your child's college education that you can put your money into instead of a child life insurance policy.

Although most people do not want to think about their child dying, funeral costs are very expensive, and a child life insurance policy will help pay for them. These plans can also help you save money for your child's future and guarantee them life insurance coverage throughout their lifetime, no matter what medical conditions they may develop.

If you are considering a child life insurance plan, discuss it with an investment advisor to see if it is the best way to insure your child's future. Weigh the benefits against the disadvantages before you buy so that you are informed of the options you have for helping to save money for their future.