Why do some insurance companies offer life insurance for children?

Q:

I buy life insurance because I have dependents who rely on my income for support. If that's the point of life insurance, why do some insurance companies offer life insurance for children?

A:

This is a very good question, and one that everyone asks as soon as they learn that there is such a thing as life insurance for children. If children don't have income to replace or dependents to take care of, why would they need a life insurance policy?

Well, here are some situations in which you might want to think about getting a life insurance policy for your child.

  1. Your child does have income. In some cases, like with child stars, the child can generate significant amounts of income that the family depends on to maintain their lifestyle. In this case, it might be wise to take out a life insurance policy on the child in case anything were to happen to them. Similar to taking our a life insurance policy on the head of the household, this will ensure that the family can maintain their quality of life even after loss.
  2. Even if the child has no income to replace, the death benefit can be used to cover any funeral expenses or to pay back any uninsured medical bills the child has racked up prior to death. If this is your primary concern, you can typically get a relatively inexpensive term life insurance policy.
  3. As you may already know, there is an investment component in most life insurance policies. If you get a permanent life insurance policy, this would be useful for building up a tax-deferred cash value that can be cashed in anytime in the future to fund certain expenses for your child, like college or a first house (to find out more, see Insurance as an Investment? It's Called Permanent Insurance).
  4. The other benefit to taking out a permanent life insurance policy on your child is security: it protects them from future uninsurability. You might not know what sort of chronic illnesses your child might develop over the years that would render them uninsurable (see A Look at Uninsurable Risk to learn more). If this is something you're worried about, it might be worth looking into getting an insurance policy early.

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Written by Jacques Wong
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Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won an Insurance Council of BC award in 2015 for academic excellence in the insurance licensing courses and educates insurance professionals through PNC Learning.   Full Bio