Life Insurance for Kids: A Worthwhile Purchase?

You've seen the commercials. "For one dollar a day, you can be prepared for the unthinkable."

Ads for children's life insurance promise great benefits for a low price, but are they really worthwhile?

The Truth about Children's Life Insurance

According to a growing number of financial experts, children's life insurance is not a good purchase, citing the central rule of life insurance: life insurance is for people that provide an income or have dependents. Typically, children don't have either.

Nonetheless, insurance agents may play "worst-case scenario" with you to convince you that children's life insurance is a worthwhile purchase, which is typically sold in the form of term life insurance.

Term life insurance covers the insured for a specific period of time as specified in the policy. If the child died during the policy's term (barring some circumstances, like suicide), a death benefit would be paid out. If the child dies once the policy has expired, a death benefit would not be paid out.

Insurers further tempt caregivers into purchasing children's life insurance by waving medical exams and offering to covert the term policy into a whole life policy at age 25, which means the child's policy could earn additional cash throughout the duration of the policy.

For only a few bucks a month, this seems like a pretty good deal to most parents. In reality, it might not be as cheap as the advertisements lead you to believe. Some experts have found that premiums for older kids (and by "old" we mean second grade) can be comparable to that of a smoking adult!

The Alternative

Despite these findings, the concept of a children's policy appeals to parents who want to cover any unexpected funeral and burial costs. If purchasing a separate life insurance policy isn't the answer, what is?

Most experts agree that purchasing a child rider for your existing life insurance is a much better solution. A rider is an extension that you can add to the other coverages listed in your policy. Purchasing a child rider is typically cheaper and will help cover funeral costs if the unexpected happens.

Don't have a life insurance policy? Skip the insurance on your child altogether and purchase a policy for yourself. The chances of a parent dying are far greater than that of a child--a loss far more financially devastating that the loss of a child.

So turn a deaf ear to those children's life insurance commercials and purchase affordable life insurance for yourself. And ask your insurance agent about the possibility of adding a child rider to your policy--you'll save money, allowing you to dump a little extra cash into Junior's college fund.