Why do parents have life insurance policies on children?

Question: I thought life insurance was supposed to be for parents or a major breadwinner in the family, so if something were to happen to the breadwinner the family would be okay financially (i.e., not lose a house etc.)  If that is the case then what is the purpose of life insurance for children? Just to cover the cost of burial?

Answer: There are several benefits to purchasing a life insurance policy on a child, even though children are not typically major breadwinners in a family.

By way of background, child life insurance plans are usually priced very economically relative to policies for adults since children usually have a longer life expectancy than adults.   This means that purchasing a life insurance policy for a child is not likely to cost much and if you purchase permanent life insurance then the bulk of your premium will be invested rather than paying for insurance.  Over time, the accumulated cash value can become substantial.

In addition, child life insurance plans may offer several benefits, including:

  1. Providing money to pay for your child’s funeral and final expenses. God forbid your child should die prematurely, the last thing you need to worry about in your time of grief is how to pay for a funeral.
  2. Building cash value inside the life insurance policy over time. Financial experts agree that consistently saving and investing modest amounts of money over long periods of time is a sure-fire way to create wealth.  A properly structured life insurance contract can help you get a very early start on this for your child, helping to ensure a life of financial stability and peace of mind.
  3. Guaranteed life insurance for your child when he/she becomes an adult. Just because your child is in good health now doesn’t mean that he/she will be in good health 20 years down the road.  By purchasing life insurance while your child is young, you typically have the option of increasing your child’s life insurance coverage when the child is older, even if the child develops condition(s) which would otherwise make the child uninsurable.
  4. The option for your child to increase his/her life insurance coverage when they turn 18 or 21. A smaller policy when the child is a minor can be converted to a bigger policy as the child reaches adulthood and approaches the time when he/she may become a breadwinner for a family.
  5. Your child may be able to take a loan from the cash value inside the policy at some time in the future. One of the great benefits of taking a loan from a life insurance policy is that loan proceeds are NOT TAXED, because they are not income!  Depending on the size and cash value of the policy, this can be a great way to generate tax-free income.

As you can see, even though children are not typically breadwinners for a family it can still be advantageous to purchase a life insurance policy for them.   Call 800.910.9205 to speak with an adviser who can help you determine the best fit for your life insurance needs, or start the process online at http://www.admaric.com/quote.html

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