I’ll love you forever, I’ll like you for always, As long as I’m living, my baby you’ll be. – Robert Munsch
The love a parent has for their child knows no bounds. Robert Munsch’s sweet tale sums those feelings up perfectly.
As parents (and grandparents), we want the very best for our children – to provide love, protection, and security. Sometimes, that includes purchasing a life insurance policy for your baby.
- Does life insurance for babies make sense?
- What are the benefits?
- What are the drawbacks?
- How do I purchase life insurance for my baby?
Here, we’ll discuss everything you need to know about life insurance for your baby.
Goal – Understand the facts and misconceptions about baby life insurance to decide if it’s right for your family.
Table Of Contents
Important – In order for the assets of a baby life insurance policy to be in place, your life insurance policy needs to be structured properly. That is to say, the policy needs to be issued from the right company, with the right features.
There are 7 important facts you need to know about life insurance for your baby:
1. Insurability Is Locked In
Even if your baby were to develop health complications later in life, their insurability is already locked in through an existing policy. In other words, you are protecting your baby’s future insurability.
How it works
Your child’s life insurance policy is a type of no exam life insurance. The process is simple and straightforward – and typically accomplished online or over the phone. No medical exam or invasive procedures are required.
While it’s uncommon to develop a medical condition during childhood, some parents choose to protect their baby’s insurability, just in case. Sometimes, a personal experience with a medical condition is a catalyst to purchase life insurance for your child:
I look at myself as an example of this. I was born with a highly underactive thyroid. My parents were able to get me a small life insurance policy as a child because they were very concerned with other illnesses springing up – and that policy still exists today. – Trent Hamm, The Simple Dollar
Odds are, your child will not be diagnosed with a serious health complication. Yet, some of us know how a health scare affects a life insurance purchase. (For example, buying life insurance as a cancer patient can be tricky.) At the end of the day, your decision on whether to protect your child’s insurability is a personal choice.
Be sure to collaborate with an experienced independent agent to find the best company to structure your baby’s policy. Not all companies and policies are created equally.
2. Option to Purchase Additional Coverage
When structured properly, your baby’s life insurance contract will have the option to purchase additional coverage – without the need to demonstrate insurability. Additionally, the policy may be converted into a permanent policy, providing lifelong protection.
By purchasing coverage now, you guarantee the child has some coverage and can buy more as an adult, regardless of health. – Barbara Marquand, Forbes
3. Savings Vehicle
A child’s life insurance policy is typically in the form of whole life insurance. (Or, you can add a child rider onto your or your partner’s policy.)
Whole life insurance policies include a tax-advantaged cash-value .
What this means:
- In addition to providing a death benefit, whole life insurance accumulates cash value, also called a savings component
- Cash value can be borrowed against and used for –
- Financing a car purchase
- Down payment on a home
- College tuition
- Personal loan
- Funding premium payments once cash value has grown to an appropriate amount
4. Finances For A Difficult Time
Should the unthinkable occur – the loss of a child – the death benefit of the life insurance policy would provide money to pay for medical bills, funeral costs and family counseling.
5. Allow Time Off Of Work
Life insurance proceeds provide income replacement and can allow you time at home when you need it most.
6. How To Purchase: Option 1
Purchase a whole life insurance policy for your baby.
Details for baby life insurance:
- It’s a type of no medical exam life insurance
- Policies typically have a modest face amount
- Cash savings component
- If your baby has a serious pre-existing medical condition, it will be more difficult to purchase a policy
7. How To Purchase: Option 2
Add a child rider onto your (or your partner’s) life insurance policy.
Details for child rider:
- Your (or partner’s) life insurance coverage would extend to your baby
- Typically has the option to be converted into a permanent policy
- No medical exam required for your baby
- A serious medical condition will make it more difficult to secure a child rider
For some, the topic of juvenile life insurance evokes confusion and perhaps even fear. After all, why would one want to insure a perfectly healthy child? – Erica Oh Nataren, Life Happens
There are 7 primary misconceptions about purchasing life insurance for your baby. Let’s clear them up.
Misconception #1: No Income Means No Need For Life Insurance
Often, life insurance is described as income replacement. It’s true that life insurance is crucial for someone whose loved ones depend on them financially. However, those who do not have an income can benefit from life insurance, too.
Here’s the truth – Many situations exist in which non-income earning individuals purchase life insurance.
Let’s revisit the benefits of baby life insurance:
- You are securing their insurability
- Your child will have the option to purchase additional life insurance without the need to go through a medical exam (or demonstrate insurability)
- Permanent life insurance can be utilized as a savings vehicle
- Finances are provided should a tragedy occur
Misconception #2: Life Insurance For Your Baby Is Bought For The Death Benefit
The odds of your child passing away are incredibly low. Of course, the proceeds from life insurance are helpful should the unthinkable occur.
However, baby life insurance is primarily purchased to: 1. Protect their insurability and 2. Create a tax-advantaged savings vehicle.
Misconception #3: Baby Life Insurance Should Be Your First Purchase
On the hierarchy of needs, there are a number of things to take care of before you consider purchasing a policy:
- Established savings for an emergency
- Food budget
Remember – Your baby’s immediate needs are more important than a possible future need.
Misconception #4: Baby Life Insurance Is a Rip-Off
If we first establish that life insurance for your baby makes sense in some circumstances (and it’s often a personal decision for parents), we can then see that the financial cost for a policy is not expensive.
You can purchase a modest permanent policy for your baby to protect their insurability.
Misconception #5: Your Baby Will Have To Go Through Medical Underwriting
Juvenile life insurance is purchased without a medical exam. That means no needles, nurses, or liquid samples.
In fact, the process is simple and often completed in a matter of minutes. Plan to answer a few health questions online or over the phone.
Misconception #6: All Life Insurance Policies For Babies Are Created Equally
In order for baby life insurance to make sense, you’ll want to apply for a policy that:
- Includes the option to purchase additional coverage (typically called a Guaranteed Insurability Rider).
- If you choose to add a child rider to your policy, you have the option to convert your child’s policy to permanent life insurance with cash value.
In other words – You will want your policy to be structured properly.
Misconception #7: All Babies Need Life Insurance
Deciding whether or not to purchase life insurance for your baby is personal.
Odds are, your child will not develop a serious medical condition or terminal illness. However –
Insurability is easy to take for granted when you have it.
Consider the following:
- Do you already have immediate financial obligations secured (housing, transportation, emergency savings fund, food, etc.)?
- Is there a medical family history that would put your child at a greater risk to develop a serious medical condition?
- Is it important to you to guarantee insurability, even if there is a low chance of my child becoming uninsurable?
- Are you interested in creating a savings vehicle for your child through life insurance?
If you decide to purchase life insurance for your baby, do one thing first: collaborate with an independent agent to verify that you are purchasing a juvenile life insurance policy that is structured properly.
To get started, simply fill out our free instant quote. Note – be sure to select the Whole Life option for a juvenile policy.