Ever write a post that strikes the wrong chord with commenters? I’ve been featured on Yahoo Finance almost weekly for the last few months. It’s been great for traffic and page rank. Plus, who could complain about writing for such a large audience. However, it’s not all beer and pizza. Sometimes, it means being eviscerated in the comments section.
My latest article, on insurance you don’t need, has elicited a record number of dissenting comments; particularly on buying life insurance for children. It would be easy to dismiss such commenters as likely insurance agents and I’d probably be right, but the points being made in favor of purchasing insurance for children is worth a more in depth discussion. You might have an insurance salesman sitting in your living room, it’s important to understand why certain policies are likely to be bad purchases.
Never Pay to Protect Hypothetical People!
I’ll start with the most convincing argument for purchasing life insurance for children; to protect insurability. What if your child becomes ill before buying life insurance? Sickness and certain disabilities could mean denied life insurance coverage later in life. While there isn’t much benefit for life insurance as a child, life insurance can be critical as an adult. Proponents argue that it makes perfect sense to buy insurance for your child to ensure that they won’t get locked out of life insurance before they need it.
I probably would have minimized the amount of scathing comments if I’d simply narrowed my article to term life insurance for children. However, I would have been taking the easy road instead of the right road. Buying life insurance to protect insurability is sillier than buying term life to cover funeral costs.
Why would I make such a strong argument? Especially in light of all the wisdom of the comments section? It’s a matter of who is being insured and who benefits from that insurance.
If you were to buy a life insurance policy to protect a child’s insurability, you might ensure that your child finds coverage as an adult. However, the benefits of income protection that are inherent with purchasing the insurance would presumably go to a future spouse or grandchild. While I do think that there is great value in term life insurance for adults, in the grand scheme of spending money on a large world of financial products, it seems like an awful waste of money to buy insurance for the protection of hypothetical people.
If It’s Not Needed It’s Not Cheap
The other big point that I am seeing in response to my article is that life insurance for children is cheap. In fact, for “like 12 dollars a month” you too can protect hypothetical children-in-law and grandchildren.
Of course it only sounds cheap. It may cost $12 per child, but it grows quickly the more children you have. Three children means $36 per month and over $400 a year in payments. That’s about the cost of my homeowner’s policy and nearly as much as my wife and I pay for our term life policies.
Besides, when did cheap justify an expense? I don’t have basic cable at my house. It is very cheap; $12 in fact. However, it would be a waste of money because I don’t watch cable. Texting costs $5 a month, but I don’t really have need of avid texting. Why would I buy it just because it’s cheap?
Protecting Hypothetical People is Overpriced
Perhaps buying life insurance to protect insurability would give you some piece of mind, it may even be cheap, but it is definitely overpriced. If your sole reason for purchasing life insurance for your child is to protect insurability, what you really want is an option to buy insurance at a later date. The frills of a death benefit and savings are completely unnecessary and only raise the cost of what you really want to purchase.
A Blanket Statement that I Don’t Mind Making
Finance is usually not a “one-size-fits-all” form of decision making. For me to tell the world that a life insurance policy for children is a waste of money is a bold statement, but one I don’t mind making. That’s because in the vast world of financial concerns, protecting hypothetical people should be at the bottom of your list.
Want to help your child? Here are some things that would be better uses of $12 a month per child:
- Two in three children attend college at some point and tuition costs for public school are climbing at a rate of 5.6% each year. Why not put $12 per month in a 529 plan. You have far greater odds at a college bill than anything a life insurance bill for a child can throw at you.
- One in three recent college graduates are out of work and less than half of Americans have even $1,000 saved up for emergencies. Perhaps it makes more sense to put $12 a month away to start an emergency fund for your child?
- The average balance in a retirement savings account is less that $60,000. Save $12 a month to open an IRA in your child’s name.
If piece of mind necessitates buying a policy to protect your child’s insurability, then I bid you good luck. Me? I’m going to put some extra money in a 529 plan for when college costs $205,000 for my children.
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