Life insurance for children has become an enormously popular gift in financial planning.
Parents purchase life insurance for their children, and grandparents buy life insurance for their grandchildren.
The reason is simple: no other financial tool has the potential to save the children as much money over their lifetime, as does life insurance! A policy purchased on a child or teen can lock in a very low premium, and stay guaranteed at that rate for life.
People that have had to purchase life insurance in their adult years know how high the cost can be - especially if they've been treated for an illness. Even common conditions such as mild depression or diabetes can significantly increase the cost.
This problem can be avoided by putting coverage in force on the child as an infant, grade-schooler or teenager. The financial benefits are clear.
What is interesting to me is the difficulty some people have in communicating the value of this gift to the children. It is, after all, a sensitive topic, and one that requires some deeper thought about caring for loved ones.
To help educate the children, I actually make a little speech when the application is signed. (Infants usually sleep through it, but some do seem to enjoy it. Surprisingly, teens find it to be cool!)
It's a bit mushy but it definitely gets the message across. And the adult family member who's sponsoring the plan really appreciates it.
"Your parents (or grandparents) love you, and are preparing a tremendous gift for you. It is a life insurance policy.
"This gift is similar to many other money gifts that parents provide for their children, such as college funding, a government bond, or a stock fund. Yet, this life insurance policy could prove to be more valuable to you than all the other gifts combined!
"I know at your age it is hard to think in terms of insured and beneficiaries. So, let's look at this another way. Let's look at some of the most exciting parts of life, such as getting married."
"You find the person that's right for you, and you make a life together. You have a family. You want to provide everything for your family, and you never want them to lack for anything."
"You buy a house and take out a mortgage. That is your responsibility as the provider for your family. You would never want your family to be saddled with your payments."
"Perhaps you will build a business. A banker believes in you and wants to back your idea for making money. You qualify for a loan, and you make sure the bank will get repaid. You never want to burden your family with that debt."
"As life goes on, you will pick up responsibilities that will belong only to you. Life insurance will make sure that no matter what happens to you, the people you love and care for will not be burdened with your financial obligations.
"But, life insurance can be expensive as life goes on. The older you get, the more costly new policies become. Also, getting sick with common illnesses, such as diabetes, can drive up the price.
"The great news is that your parents (or grandparents) are helping you avoid these problems. Because your folks are giving you a life insurance policy today, you're locking in a low price that stays the same even as you get older.
"You can become a world traveler, or a soldier, or a world-champion bungee jumper! And that won't change the price. Even if you unfortunately become sick, that won't change the price."
"You can see that, throughout your lifetime, life insurance can be your pillar of financial strength.
"That is why many parents (or grandparents) choose to give life insurance to their little ones (even teenagers smile at this term of endearment!).
"And that is why you're being given this policy today." (This is the child's cue to thank the adult, which is usually done with wide eyes and a "wow.")
The application process is trouble-free for the child. If old enough, he or she signs the application; if not, no signature is required.
A medical exam is not needed.
The parent or other adult family member pays the premium, and then at some point hands over that responsibility when the child matures. It's that easy.
Generally speaking, the amount of insurance on the child can not exceed the amount of insurance already in force on one parent.
While adults will chose between term insurance and permanent insurance depending on their need, whole life insurance is the preferred choice for children. This is because - in addition to the low guaranteed premium, locked in for life - whole life provides a guaranteed cash value, a non-guaranteed cash accumulation, and the option to increase the survivor benefit if desired.
As a matter of fact, with a strong company that can pay dividends on a regular basis, the non-guaranteed cash accumulation can be very significant over time. The life insurance policy can become a valuable source of cash for the child later in life. The down payment for a mortgage, a business loan, or funds for an emergency can all come from the life insurance.
If the premium payer would like to spend less on the premium - and get a smaller cash build-up - then universal life could be used. With the life-long guarantees now available in these products, the premium could still be guaranteed to never increase, and the face amount could also be guaranteed to never decrease. And, the premium payment schedule could be made flexible, tailored to cash flow.
Best wishes for health and success,
Steven Kobrin, LUTCF
6-05 Saddle River Rd #103
Fair Lawn, NJ 07410
(866) 633-1818 Phone
(201) 796-8244 Fax
Steven Kobrin, LUTCF, is life insurance licensed in DC and 48 states. Residents of Hawaii and Alaska should NOT request a life insurance quote. Use of this web site indicates understanding of these statements.
by Steven Kobrin, LUTCF. All rights reserved.