Question by Megan S: Why do parents take out life insurance policies on their children?
I just got an ad for a “Gerber Life Grow-Up” plan as an insert in my morning paper. The whole idea weirds me out big time! The ad claims that a child will “have trouble getting a policy on their own once they turn 18″. It doesn’t make any sense to me because my husband at age 25, just bought a rather large policy to supplement the policy he gets from his employer with few questions asked. Its also a bad financial investment too, several financial experts in Money, Kiplinger’s, etc. have said that its not worth the money anyway.
Am I the only one that is creeped out by child life insurance policies?
Best answer:
Answer by Kathryn
They use the “trouble getting a policy” line as a scare tactic. As you know from first-hand experience, young healthy adults can easily get life insurance. There is no reason to buy life insurance on someone who does not have dependents.
Know better? Leave your own answer in the comments!
#1 by golferwhoworks on January 25, 2012 - 3:53 pm
you need a term life policy just enough to cover a death and funeral expenses as no parent want to gain with a death of a child
#2 by americanfreeman on January 25, 2012 - 4:34 pm
Because some unethical person sells it to them.
Do not buy life insurance for your child.
Increase your own. Save for college.
#3 by eddie on January 25, 2012 - 4:57 pm
i took out life insurance on my kids so if they died
i would have money to bury them thank god i didn’t have to use it
#4 by MSAD on January 25, 2012 - 5:21 pm
Well…..if the child were to die (while a minor) – it’s going to be your responsibility to pay for a funeral etc. To bury someone can easily run 10,000. So, some parents get a life insurance policy for that. Just enough to bury the child.
Or
If the child were to be diagnosed with a disease or illness (say childhood leukemia etc) even if the child survives, with a cancer history – it’s going to be hard to get an affordable life insurance policy as an adult. But, if you have a policy that was put in force prior to the illness and you kept in in force paying premiums….the child would have at least that.
Some parents get a life insurance policy on an infant in the hopes that it will have some cash value that can be used for college.
However, you don’t have to get the Gerber grow up plan. You can shop around to get a better value elsewhere.
But no, insurance policies on children don’t creep me out .
#5 by Brian C on January 25, 2012 - 5:55 pm
I’m not sure of the details surrounding the Gerber policies, but some people buy whole life policies for their children when they are young. The reason behind this is that a whole life policy will be relatively inexpensive when the children are younger, but the price increases dramatically as they age. With a whole life policy, there are two components. One is the policy itself, and the other is a cash surrender value that builds up over time. As you pay the premiums, this cash value will increase. You can borrow against this value, and many people buy the whole life policies for their kids and then borrow against them to fund the child’s college education. If the policy is ever canceled, then the holder will be eligible to receive the cash surrender value.
Term life insurance policies are what most people buy as adults. These policies will expire when the holder reaches a certain age (as defined by the policy).
That’s just some background on why some people buy policies for their kids. I don’t have the background to discuss if this is a good investment, and while I do see the logic behind it, I agree that it seems kind of morbid to buy life insurance for your kids.
#6 by mbrcatz17 on January 25, 2012 - 6:21 pm
The only time a child has trouble getting insurance on their own, is if they develop a childhood disease, like leukemia.
I have three kids. I don’t have life insurance on any of them. I think it’s bad math. I DO have investment accounts for all of them – it’s a much better place to put $ 25 per month, per kid.
#7 by pigeonguy on January 25, 2012 - 6:57 pm
It depends. A parent could put a policy in place on children and use the policy to provide a vehicle for tax advantaged growth for the child’s future. Parents could have a policy on a child in case something fatal happens to that child while it’s under 18 — it costs as much to bury a kid as an adult. There may also be a secondary need for a policy on a child. Let’s assume a child dies. Do you really believe mom and dad are going to take three days off, put the kid in the ground and then go immediately back to work? They’re going to need time to grieve, to take care of the rest of the family that are hurting, etc. Money from a correctly structured life insurance policy can provide a cushion to allow them to do that.
I take issue with the the so-called financial experts you allude to. It may depend on which policy is put in place and how it’s structured. I’d also be interested to know if the experts you mention were also dually licensed and able to discuss all the options. Can a child’s policy be a poor choice and a bad financial investment? Heck yes it can. Can it be an outstanding choice and a fantastic way to grow money for the child’s future? Yup. It all depends on the need and the way the policy is structured.
As for your husband, congratulations. However, I know a twenty-two year old young man right now who is desperately seeking to get covered and having very little luck. If he does get covered it’s going to be on a rated coverage and he will be paying a fair amount for it. Why? Because between the time he was a kid and today, he’s had some serious health challenges. If his parents had gotten him a correctly written permanent policy as a baby or small boy, he wouldn’t have to worry about it now. He’d have it and it would run for his life.
So to answer your final question — you may not be the only one “creeped out by a child’s life insurance policy” but there are very, very valid reasons for having them and making sure that they are written so that the child, parent and family are taken care.