As parents, it’s natural to want to provide our children with all the advantages that we can, from education to sports, from music to travel, from technology to introductions. I’m not talking about spoiling them with a bunch of unneeded material objects, but rather with things and experiences that could help them in their adult life, and one of those things is a permanent life insurance policy.
Few people would view providing an Ivy League education as spoiling a child and probably fewer would consider buying a life insurance policy on them as spoiling them. In fact, I would be willing to wager that most people who buy life insurance on their kids are told by their friends and colleagues how dumb it is.
The argument against life insurance on kids is that only those who generate an income need be insured, and since kids don’t generate any income, they need not be insured. While that is a perfectly logical argument, it misses the point that by doing so, you are giving your child an advantage. How so?
The premium on a 25 year old is approximately 2½ times the premium on a newborn, so there’s efficiency. Additionally, it is extremely likely that a policy procured on a newborn will have sufficient equity by age 25 to pay all future premiums, that is, no out-of-pocket premiums will be required to keep the policy in force.
But by far the greatest benefit is a rider that allows for the purchase of new insurance, regardless of any health issues. Granted, most 25 year-olds don’t have health issues, but certainly some do (The 9th edition of the World Health Organization’s International Classification of Diseases now lists over 13,000 diseases, syndromes, and types of injury, so it’s not like it can’t happen).
With those advantages, why wouldn’t every parent give his/her child the gift of a life insurance policy? The primary reason is economic. There are just so many expenses that young parents face that this goes to the bottom of the list, as it should.
In other words, life insurance on your children shouldn’t even be considered until your affairs are in order. That would include: having the appropriate amount of life insurance on you and your spouse, contributing to your 401(k) at least enough to get your employer’s entire match, establishing and funding a college education fund and having wills drafted.
So you can see that even though this would be extremely beneficial to your child, few parents actually do it. Enter the grandparents! The grandparents are usually on firmer financial footing, so the premium could be much more affordable. And it can be structured in such a way so as to pay the annual dividend to the grandchild at some point in the future, thus creating not only a lasting remembrance, but also an annual reminder of them.
So while the naysayers contend it is a waste of money, you now know better. Not only is it money well spent, but it creates a lasting legacy.