“What do you think of having life insurance on kids?” is a question I occasionally get. This is also something on which I have had a change of heart over time and probably in no small part to having a different mentality after having kids.
Long ago when I thought of life insurance on children, I looked at it as something to provide a death benefit for the parents and it didn’t make a lot of sense to me. Also, I know there is a significant contingent of agents in the market who primarily sell whole life on kids as an investment, focusing on cash value more than death benefit and while I am not always the biggest fan of that, it can be a supplementary benefit.
At some point my mindset regarding the death benefit changed from the needs of the parents to the needs of the kids themselves. Here is what I mean. As I was growing up and through college, I ran with pretty much the cleanest group of kids you could imagine. However, over time, an unsettling number of them ended up with medical issues which prevented them from obtaining life insurance at reasonable rates or even at all. In their thirties they ended up dealing with things like cancers, pulmonary embolisms, ALS, mental disorders, Ulcerative Colitis, various cardiac issues, etc. In my practice I also see regular challenges with obesity, diabetes and alcoholism. Some of these impairments can and will show up while kids are still kids. Maybe this is weighing on me now as recently a disturbing number of friends, old classmates and business associates have passed away at young ages.
The point is, your little girl or boy is going to grow up to be a breadwinner or a stay at home parent or a business owner and there is a likelihood that sooner or later he or she will need or want life insurance. What kind of burden will it be if it is unattainable at that time? In my situation, there is the additional fact that two of my three children were adopted and there is no knowledge of family medical history whatsoever. That being said, it is my biological child who is positive for a genetic trait which may be an issue some day.
Given just how inexpensive life insurance is on young people, the gift a parent can provide to a child by protecting that insurability can hardly be overstated. Imagine that your child is the breadwinner of the family and is uninsurable; the $50,000 of group life coverage, if even that is available, isn’t going to go far. It’s not going to be comfortable to be twisting in the wind all those years that you have a family depending on you and you have no insurance coverage in place.
For minors there really isn’t an option besides a permanent or cash value style of policy, which is more expensive than term. I would put particular focus on a policy with Guaranteed Insurability Options (GIO) which guarantee the right to buy more insurance in the future at favorable rates regardless of health.
Once the kids are old enough for term insurance I recommend to parents that they jump on it. You might be shocked to discover how cheap it is. I reviewed an internet term engine to look at rates for an 18 year old female for 10, 20 and 30 year term at preferred rates (second best). For $250,000, $500,000 and $1,000,000 it is $124, $188 and $287 respectively for 10 year term, $154, $255 and $431 for 20 year term and $216, $370 and $644 for 30 year term. You might notice that proportionately, at these ages and amounts, the larger death benefits cost less per dollar than the smaller amounts.
The next question usually is “How much?” Now I get to sound like an agent but my answer is “As much as the underwriter will issue.” It is important to know that financial underwriting is as pertinent as medical underwriting and the insurance companies will only issue so much if there is not an income or net worth to support it. Generally, at these ages, the amount available for children is more dependent on the income, net worth and amount of insurance in force on the parents.
I have traditional whole life policies on my kids with Guaranteed Insurability Options (GIO) which will allow multiples of the original face amount to be purchased regardless of medical condition. When they are 18 you can bet that I will go to the insurance carrier which is the most liberal with their guidelines and buy as much as they will sell me; a million dollars or more if I can cajole them into it. And it doesn’t matter if any of them is ultimately a homemaker with no earned income. If you want to talk you will discover I am pretty passionate about insurance on “stay at home” parents.
I have a business owner client with a nine figure net worth and an eight figure annual net income and the first of his kids are just coming into the business. He and his wife have tens of millions of insurance so it is not a stretch to believe that his kids will need some in the future as well. $5,000,000 of 20 year term only costs $2,000 a year on a healthy 25 year old male. Is it really worth waiting until he is married or owns some of the stock? Given what is at stake, it doesn’t seem like it to me.