The major reason for purchasing children's life insurance is for the death benefit. These funds can be used to pay for funeral or memorial services or to cover any unpaid medical bills incurred while caring for your child.
The death of a child has extreme emotional impact on the parents but the financial impact will be limited to those aforementioned costs. If you want to insure against these, perhaps you can add your children to an existing life insurance policy for yourself for a small additional premium. Also, check to determine if it is a benefit provided from your employer.
Children's Life Insurance - Builds Cash Value
Permanent insurance such as whole life or universal life insurance does build tax-deferred cash value. This cash value can be accessible for college tuition or down payment on a home. Paying regular premiums will develop disciplined contributions for your child's saving account; however, the cash value of life insurance is decreased by the annual cost of the death benefit.
Children's Future Insurabilit
You don't know what your child's future health will be. Buying life insurance earlier with the intent for it to be permanent does result in a lower premium at the time of purchase. If you have a family history of poor health, that will increase the premium costs. It is difficult to anticipate what those costs will be as your child matures into adulthood.
The choices for children's life insurance policies are either whole or universal life permanent policies. Term insurance is not sold on children.
- Whole life insurance - Caters to long-term goals by offering consumers consistent premiums and guaranteed cash value accumulation. Here, your insurance company puts part of your insurance money in a high interest bank account. With every premium payment your cash value increases. This savings element of your policy builds up your cash value on a tax-deferred basis. In a way, the presence of guaranteed cash values makes this policy worthwhile because you can borrow against your cash value or surrender your policy to get the cash value in hard cash. You can also opt to participate in the surplus of your insurance company and receive the dividends annually. Here again, you have the choice to either get your dividends in cash, or let them accumulate interest. You may also use your dividends to reduce your policy's premiums or buy additional coverage.
- Universal life insurance - Gives consumers flexibility in the premium payments, death benefits and the savings element of their policy. This policy is also termed "adjustable life insurance," because it offers more flexibility compared to whole life insurance. You have the liberty to reduce or increase your death benefit and also to pay your premiums at any time and in any amount (subject to certain limits) after your first premium payment has been made.Here, you can increase the face value of your insurance coverage. But, you need to pass a medical examination to qualify for this benefit. Similarly, you may decrease your coverage to a minimum amount without surrendering your policy. However, surrender charges may be applied against the cash value of your policy.When it comes to the death benefit, you have two options - a fixed amount of death benefit or an increasing death benefit equal to the face value of your policy, plus your cash value amount. You also have the opportunity to change the amount and frequency of premium payments. So, you can increase your premiums or may also even pay in lump sum according to the specified limit in the policy. As you know, part of your premium minus the cost of insurance is put into an investment account and the interest therein is credited to your account. In this way, the interest grows on a tax-deferred basis, which increases your cash value.
Before purchasing any insurance product, be sure to discuss your specific needs with your insurance advisor. At Dave Reed Insurance, the Peace of Mind People, we are ready to answer any questions you may have. Feel free to telephone our Creighton Road office at 850 494-2264 or our N. Navy Blvd. office at 850 453-8555.