You’ve undoubtedly heard that every adult should have some form of life insurance. However, what about children? Does it make sense for parents to start them off with a life insurance policy as early as possible? Keep reading to find out.
What Kind of Life Insurance Can You Buy for a Child?
Children often receive life insurance coverage through what’s called a “rider” on their parent’s terms or a permanent policy. Riders can be thought of as add-on products. Rather than buying a separate life insurance policy for the child, a rider is usually a more affordable way to ensure that every family member is covered.
However, that doesn’t mean that stand-alone policies don’t exist. When you ask yourself what life insurance is, you’ll recall that these policies can be used as a death benefit and an investment vehicle. Therefore, even though a permanent life insurance policy will cost more than a conventional rider, starting your child early with one will have its advantages.
Why You Should Buy Permanent Life Insurance for Your Child
Here are a few good reasons to consider getting a permanent life insurance policy for your child.
Early Qualification
When it comes to life insurance, the earlier you start, the better. This is because as we get older, there’s no telling what kinds of health problems or medical complications may develop.
Since many children are fortunately free of these issues, it will almost guarantee that they will pass the medical and health screening. This will also put them in a position to qualify for the lowest possible premium rates – something they will carry with them for life.
Payments Will Be More Affordable
Permanent life insurance payments consider how much cash value the policyholder could potentially build up over time. The longer you pay into this policy, the smaller the payments should be.
Therefore, it makes sense that you would want to start this process as early in life as possible. Generally speaking, healthy adults in their 20s will pay much less than people who decide to start permanent life insurance policies in their 40s and 50s. Therefore, you can imagine how much more of an edge your child would have if you started them out before they could even walk.
The Policy Builds Cash Value
Some people believe that the more attractive feature of a permanent life insurance policy is the fact that it builds cash value over time. Depending on which type you get for your child, it could have the potential to grow and compound tax-free, just like a retirement account.
This life insurance could give your child many advantages later in life. For instance, they might:
- Take tax-free loans against the cash value to purchase other income-producing assets such as investment properties or to start a business
- Use the cash value to pay for the policy itself, thus making it self-sustaining
- Withdraw the cash value entirely and pass it on to their heirs
Again, the sooner you start this process, the greater the potential the cash value could have in each of these cases.
The Bottom Line
Parents looking to set their children up financially may want to consider the benefits of a permanent life insurance policy. Not only will this help the child to qualify for lifelong coverage and reduce their payments, but it will also give the greatest opportunity to build significant cash value that can be used for future financial gain.
