17 August 2012 0 Comments

Life Insurance On Children

If you’re a parent thinking about buying life insurance on your children ask yourself, “Why?”  What is your rationale?  If it’s to pay for funeral expenses, then add a children’s term insurance rider to a policy on your life.  For about $60 per year you can probably add  $10,000 on all your children  currently between ages 15 days to 19 years and continue that coverage until they are age 25.  Future children will automatically be covered at the age of 15 days.

If your rationale is to guarantee their insurability in case they contract illnesses, then make sure the children’s rider described above is convertible to a permanent policy.

If your rationale is to create a college fund, put more insurance on your life as the breadwinner whose income would be stopped if you died before the children reach college age.  That’s where life insurance premiums need to be applied—to replace income lost from the premature death of a parent, not on the life of the child.

If your rationale is to someday transfer ownership of a paid-up policy to an adult child who will say, “Gee, thanks Dad for this life insurance policy,” forget it.  That is not likely to happen.  Most post teen “adults” will likely cash the policy in to buy some trinket.

There can be exceptions.  Several years ago I was instrumental in obtaining a multimillion dollar policy on the life of a young man in his early teens.  But, he was the star of a TV series and the policy was owned by the production company to insure their future earnings that would be lost in the event of his death.

So, unless your kid is a source of current income, place your life insurance premiums on the lives of the parents.

Coming up, it’s an about-face from insurance on children and I’ll be covering the use of life insurance in estate planning.

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