Child Insurance Policies.

Child Insurance Policies.

Many people do not want to think about life insurance for their children, but it can have benefits that exceed simply paying out in the event of a child’s death. Buying life insurance for your child can provide them with important protection in their adult years in the event that they become uninsurable. Some policies can even operate as a savings vehicle, providing your child with significant amounts of equity if they were to need it.

There are two ways to buy life insurance for a child:

1. Child Protection Rider
A Child Protection Rider is a rider that is added onto an adult’s life insurance policy, usually term insurance. This rider would provide a payout in the event of a child’s death and would also protect their future insurability. Typically, the rider allows you to buy more life insurance for the child without providing medical evidence at a predetermined option dates. Some typical option dates are as follows:

  1. The insured child becomes legally married
  2. The insured child gives birth to their own child
  3. The spouse or common law partner of the insured gives birth to a child
  4. The insured legally adopts a child.

These dates and conditions may vary depending on the agreed upon terms of your insurance contract.

2. Permanent Life Insurance
Another option for insuring a child is insuring them with a Whole Life or Universal Life insurance policy. Similar to the Child Protection Rider, a whole life policy would provide a payout in the event of the child deaths. A major difference, however, is that a permanent life insurance can accumulate cash value.

A properly structured permanent life insurance policy will continue to build equity as your child ages. The dividends paid out into these policies could provide your child additional insurance or could accumulate a significant savings account that could be advantageous in their adult years. Since children also require little or no underwriting, it also ensures that they are insured in the event they become uninsurable.

Child life insurance policies can be a smart investment that can have benefits that far exceed the traditional purpose of life insurance. It may not be the right strategy for every family, but ask your advisor if it has a place in your financial plan.

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