General Question

shilolo's avatar

What is the rationale behind buying life insurance for a child?

Asked by shilolo (18055points) September 23rd, 2008

There are lots of companies out there that will sell you life insurance for your child. I am fully aware of the value of life insurance for myself and my wife (to provide for the other, or our children should we die), but why is child life insurance sold? If I lost my son, I would be devastated, and no amount of money would change that. So, is this just a legalized scam, or is there a virtue to this that I am missing?

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25 Answers

Bri_L's avatar

I think that it can be set up so when the policy reaches a certain point the money or its value can be turned over to the child.

JackAdams's avatar

As long as the original policy remains in force, the monthly premiums will never increase, no matter how old the child becomes.

aidje's avatar

I would imagine that it’s to help cover a funeral. Funerals are very expensive.

SpatzieLover's avatar

Pretty much a scam.

Some are good for helping to pay for college, but a college fund and/or state bonds area MUCH wiser investment.

Most of the “childrens” only policies end once the child reaches 21 or 25.

drhat77's avatar

Shilolo with a question? aHAHAHAHAHA now is my chance to strike!
The rationale is that, before they start smoking, before they develop some condition which would otherwise make them pay a higher premium, you can lock in a low premium.

shilolo's avatar

See, the thing I don’t understand is that virtually no one is uninsurable for a term policy in their 20s (even if they want one). I didn’t get a policy until my 30s, when I was married and had a kid on the way; otherwise, while my death would have been tragic, I didn’t need to cover anyone’s finances.

So, why waste money on a policy “just to get their foot in the door.” If one makes the argument that it will be a whole life policy, or some sort of annuity, then I think there are far better investment options like 529 plans.

JackAdams's avatar

Your financial advisor or business manager, is the best person to consult, on this. If you have such a person, I encourage you to ask him/her for advice.

robmandu's avatar

@shilolo, you’re response is correct. It’s simply a lazy investment device which happens to pay out in case of death. And like others have said, not a very good one.

Invest money for your kid elsewhere.

marissa's avatar

First, not all insurance policies for children are the same. Many of the ones that you receive offers for in the mail (ie, Gerber Life) are playing off of new parents’ fears and don’t really make financial sense in the long run. Investing that money would make more sense (as others have said). However, the benefit of guaranteed insurability may be worth looking into. It depends on your family medical history. Yes, “virtually no one is uninsurable for a term policy in their 20s ”, however, that is not always the case. Also, even if they have a pre-existing medical condition, they may be insurable, but the policy might have a clause that it doesn’t pay out, if the death is linked to the pre-existing case.

Snoopy's avatar

In my opinion they are a waste and a pain in the backside for your child’s future spouse (read: me).

My in laws got one of these things thru MetLife in the 60’s. The paid it in full and my husband is now the owner. We get an annual statement about its value and how much it has earned and the reinvestment, etc.

We checked into cashing it out….as you can guess, it is worth signficantly more if we wait until my husband dies to cash it in….

They tried to open new policies in my kids’ names and I refused to give them their SS#s. I have asked them to contribute whatever that money would have been to their 529’s and ESA’s (college funds).

The only reason to buy one of these is to pay for funeral expenses for your kid.

It is just “one more thing” to have to keep track of…..don’t get them…..

Bri_L's avatar

Arn’t some just policies that when they mature can pay out the money to the child? That is it.

Snoopy's avatar

@Bri. My in laws paid just under $500 for the policy. Current value is approx $2600.

If we cash it in, we would get $1200. We would then have to pay taxes on $700 ($1200 – what they paid/$500)

If I cash it in whenever hubbie dies (assuming I precede him in death, obviously) I get the $2600 (or whatever the current value is—-). No tax implications.

Bri_L's avatar

oh. ok.

augustlan's avatar

There is value in getting insured before health problems get in the way. By age 30 I was virtually uninsurable due to kidney disease. That would be the only benefit I could see. That said, my children are not insured.

Snoopy's avatar

Further…..I just figured this out on an investment growth calculator

If they had taken that money and invested it at 8%, that money would be worth $8800 today.

marinelife's avatar

As you and others have said: rip-off.

SuperMouse's avatar

I always found the concept of insuring a child’s life a bit gruesome. I always figured the whole concept was a scam, not unlike that travel insurance you used to be able to purchase at the airport, or mortgage life and disability insurance.

ninjaxmarc's avatar

when I was a baby, my grandparents bought me life insurance which I’m glad. It was cheap back then and when I was old enough I took over the monthly at 19.50.

Now, I wouldn’t even think about life insurance. I’m just glad I have it now.

It’s more of an investment you can pass along to them in the future or cash it out.

jvgr's avatar

Skipping all the tax-related issues of life insurance policies,

Life insurance is an economic insurance.
Parents need to be insured so that their families can continue in the event of a parent’s death. Even non-working partners need to be insured – they don’t bring in income, but they prevent a lot of spending. (note: if the cost of insurance for parents is a budget issue, consider term life insurance rather than whole life)
Children do not contribute to the economy of the family and they don’t do the kinds of things that save the family from spending money except for the expenditure created for funeral-related services should they die.

Assuming a child is a normally healthy being, the odds of their dying are low, though the odds rise as the child ages and takes on other risks (driving…)

Funerals (to use the term broadly) do not have to be expensive unless that is your choice.

You might consider taking the premium you would spend and putting it in your child’s education account (as an additional sum). Should your child die, they won’t need the educational fund, so that is available for funeral related services. If they survive their childhood, which is the most likely outcome, their educational funds will have increased much more than otherwise.

aidje's avatar

It is true that one can choose to have a ridiculously expensive funeral, but even a regular funeral is expensive. Even a non-fancy funeral costs about $6000. If that seems crazy, just think about the cost of the plot, casket, and vault. It adds up.

Snoopy's avatar

@aidje all of those costs that you mention can be eliminated w/ cremation….

aidje's avatar

That’s true. Cremation can reduce the cost to ~$1000. But while cremation is gaining in popularity, there are still a great many people who consider it a non-option. When someone dies, people usually aren’t thinking about the absolute cheapest way to be done with the whole thing. It’s easy to be detached when we’re discussing it online—it’s a lot harder when you’re burying your kid.

But I just remembered something—a lot of funeral homes will drastically cut the costs when they’re burying a child. They usually take a loss on it. So perhaps all of this is irrelevant.

Snoopy's avatar

@aidje For me, cremation isn’t about cost containment. It is a personal preference. As a family, we have made our wishes known.
Like medical decisions (e.g. life support), funeral arrangements are best discussed and decided upon outside of the context in which they might be necessary.

aidje's avatar

But you’re talking about it right now in the context of cost containment. My point is that many people consider not getting cremated to be far more than a personal preference.

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