You’re looking for ways to save for your child’s future…
When money is tight, you start looking for the least expensive investment option…
One of the oldest savings vehicles is a life insurance policy.
Life insurance for your children can be a good, low-cost method of setting money aside for the future and making sure that your child has insurance when they’re grown. This is especially true if your family has a history of medical conditions that might limit your child’s life insurance options in adulthood.
The flip side of the coin is that there are other more effective ways of saving available now, like 529 plans.
According to the American Council on Life Insurers, only about 15% of people under the age of 18 have life insurance and that percentage has remained steady for more than ten years. Still, whether it’s a good investment is a commonly asked question and many parents aren’t sure what to do, if anything.
When deciding whether or not to buy life insurance for your children, here are a few things to consider:
Some financial planners say the only reason for buying life insurance for your children is if there’s a family history of health issues, such as heart disease or certain types of cancer, that might make it difficult or extremely expensive for your children to obtain life insurance as adults.
But how do you decide how much to buy?
It’s virtually impossible to know how much your child will earn in the future, but conventional wisdom says to use your own income as a baseline.
Try to get a policy that’s renewable and can be converted to a whole life policy to increase the investment value.
When you start doing your research, you will probably find that many companies don’t sell term insurance for children so have an independent insurance agent do the looking for you and find the best possible policy.
Insurance As An Investment Vehicle
Another possible option is a policy that allows you to invest money on a tax-deferred basis. The gains on the investment are taxed, the first withdrawals would be to pay premiums and those are tax free.
Over the long haul, a better investment for your child’s future will be a 529 plan or an education IRA. These will provide a better return on your investment.
One More Word To The Wise
Before you spend the money to purchase life insurance for your child, make sure your own life insurance needs have been met first. Getting a policy for your child if you’re underinsured yourself doesn’t make sense.
If you’re considering life insurance as a way to invest for the future of your child, and not just as a means to pay burial expenses if something horrific happens, look at other investment options that will benefit your child while they’re alive.
Consider putting the same amount you would pay in premiums into an annuity. You will probably end up with more money saved eventually than the face value of the term life policy.
Above all else, look at every option. If you have questions, we can help you decide the best course of action for you and your child.
A Family Wealth Planning Session normally costs $750, but this month I’ve made space for the next two people who mention this article to have a complete planning session with me at no charge. Call today and mention this article.