Best Life Insurance Options For Children
Boom! “God Just Zapped him into heaven”
These quotes are written on my brother’s tombstone. He died at the age of 16 and I was only 13 at the time. It is fair to you that I disclose his death, as it impacts my viewpoint in this writing. Overall, I hope that this review, the best life insurance options for children, serves as a guide to assist you in your search for the best value and sage solution for your children or grandchildren.
To this day, I do not fully understand the financial dynamics of what my parents went through but I know that they did not have any insurance on us kids. Moreover, I have a more difficult time understanding the emotional toll that they endured burying their son. We did not have the right kind of insurance or plan. There was no life insurance or resources planned to cover the burial expense for my brother. The medical bills, ambulance & transport costs, hospital fees, the damned freakin bills piling while the bereavement process endured unpleasantly stagnant. It took time, and lots of stress. Somehow, my parents had to figure out and make due.
Seeing this struggle and the challenge first hand, I have made made a connection to having a reason to purchase life insurance for my own kids. I share my struggle to help explain the options that are available in hopes that you find a solution through insurance or self funded plan.
Note: I was surprised at the information we found, this includes one type of policy option that does not appear on most reviews.
Most financial gurus say that if you have a healthy emergency account then you do not need insurance on your child. While this idea has merit, life is more than just the math and burial expense of $10,000. Ric Edelman, a colleague and ally I respect for most things financial, is wrong. Written in his book, The Truth About Money, he believes that life insurance policies for children “constitute an incredible waste of money.”
Is there A Better Way?
Despite some financial experts reasoning, there is a group of people who want to know all their available options . Emergency account is one option but is there a better way? As a consumer, I want to know what options I have in comparison to having my children being “self insured” through my emergency account. As a financial professional, I know there are stronger reasons to buy life insurance outside of a simple death benefit. Which leads to the question: Are they worth it?
It is the reason for this blog post, I wanted to give you detailed information that I gathered during my own purchase. I want you to have options in your decision process to know what is best for you. Interestingly, the best option for me was not the term insurance rider that I have been recommending for years. While I strongly believe that it still works. There are some challenges that did not make it the most right purchase for my planning needs.
My Personal Challenge
I tried to add a Child Rider to my policy but it was denied. I could not add the rider because the term insurance policy I purchased years ago only allowed a Child Rider to be added at time of purchase. Boo…
Like a superhero battling the forces of evil, I donned my investigator glasses and virtual cape. I was challenged to find out what options are available and what solutions are possible. A quick google search resulted in little help and most articles were one sided. I knew my followers in search for insuring their children needed more.
Overview of Best Life Insurance Options for Children
|Self Funded||$10,000 w/ zero debt||$10,000||$10,000 up front|
|Term Rider||$50 Annually||$10,000||$1,250 age 1-25|
|Employer Coverage||Varies||2,000 to 10,000||Varies (not portable)|
|Life Single Premium Term||$295 one time||$10,000||$295 to age 22|
|Children’s Term||$48 annually 1-17
$60 annually 18-39
($816 1-17 + $480 18-25)
|Gerber Grow Up Plan||$78.36 Annually (6.53 c||$10,000 (coverage doubles at age 18)||$1645.56 to age 21
Cash value Guaranteed ($1,100)
|Gerber Life College Plan||$450 Annually||$10,000||$8,100
(Cash Value at age 18 $10,000)
|Humana Junior Estate Builder (Term)||$35 annually||$15,000||$875 age 1-25|
Self Funded through an Emergency Account: the idea here is that the loss of a child is purely financial and funeral costs should be the sole reason for needing insurance coverage. It is recommended that $10,000 is the likely need.
Term Child Rider: This is a simple add on to your personal life insurance policy. For example, a child rider can provide $10,000 in coverage will run you as low as $4.17 to about $6. It’s a simple family solution, as one child rider will typically cover all children in the household. This is an easy solution and a bargain for large blended families.
Term Life for Kids Via Employer Benefits: Not always an option with every employer, but it can be a very low cost solution if it is part of your employee benefits. If this is an option for you, you need to take caution as most employer policies lack portability. To better define this, you can’t take it with you if you leave, retire, let go, or if the company closes. Convertibility to an individual policy may also be a challenge.
Single Premium Children’s Term Life: This is a one time payment option covers one individual child. It is an affordable children’s term policy to age 22. Not a bad deal at as the Single Premium cost of $295 for $10,000 of coverage till age 22. Here is how it works. You drop down $295, one time fee, and it’s done. Simple and easy. Yet reviewing this policy, I found that coverage is limited to half the death benefit if the child dies before age 5.
Children’s Term: This is a stand alone term policy per each individual kid. The annual costs are about $48 for $50,000 in coverage ages 1-17, then $60 ages 18-39. This type of policy is new to me, and is offered by a highly rated insurance company. For four dollars a month, coverage is 5 times the amount that of the $10,000 term rider mentioned above for similar costs. This might not be a great value as the cost can add up if you have several kids to insure.
Permanent Life Proponents of Permanent life insurance compare it to real estate saying that term is like renting, Permanent is like buy. While the parallels to real estate don’t fit, permanent life has value in estate, business, legacy planning. This is not likely the case the 99 percenters that are still building their legacy. When it comes to any Permanent policy is a long term expense that you might not need if you save well in other tax advantage savings. In the area of Permanent life, there are three likely options that you should know for insurance for kids. This is also known as permanent life insurance for juveniles. Lets dig in.
Whole Life Insurance for Children: The benefits of this permanent policy is that it builds up cash value that you can borrow through a policy loan or surrender the policy and take the cash. There is a limit of how much you can put in to keep it a taxed advantage policy. At the end of the day, you are paying a lot of money to solve for the need of an unexpected death of a child. Often policies are sold as taxed advantaged vehicles to pay for College Tuition expenses. The most common player that markets to new parents is the Gerber Life Grow up plan.
Universal Life insurance for Children: This is another type of Permanent Life insurance plan with flexible premium or adjustable payment options. Most blogs and critics say that it is a complete waste of money. Similar to the Whole life policy, it develops cash value. The universe of payment options is a suckers bate that insurance agents try to promote. They tout, “You have flexibility in your payment options and if you build up enough cash value, you can stop making payments.” I am not a fan.
Variable Life for Children: This type of policy is designed to combine the savings benefits of Whole Life insurance and the growth potential of “Variable” investment funds. This is a great idea but investments in separate accounts that use expensive mutual funds eat away at any earnings. Subtract the poor performance, money managers fees, marketing fees, and the market, and you’re left with much to be desired. Better stated, the investment options inside these policy lackluster and need desperate help from Jack Bogle.
Variable Universal Life for children: While there are lot of insurance agents who can sell sand at the beach. Much like the Variable Life, I would not trust that this type of insurance to be vividly be transparent about the fees. It would be hard trusting the insurance agent as I am very skeptical. But that is just me. Generally, this type of Insurance is the most expensive type of cash-value insurance and poor as an investment tool.
Paying for College
As parents and grandparents, we feel joy with the idea of saving for their future. There are several ways to accomplish this such as 529 Savings Plan, Coverdell Educations Savings, Roth IRA, Investments and the like. If you are insistent on purchasing a Cash Value life insurance policy for future spending needs like college, you be best to compare and evaluate the better options available to insure the breadwinner.
Solving for Confidence
At the end of the day, your mission is to be confident in your plan in solving for a possible emergency and death of a child. It’s not a complicated task when you understand what your ultimate goal. It should be a simple solution. Moreover, It is your freedom and benefit to use frugality muscles or be a spendthrift in your purchase.
A few last words of reflection
I remember the last words that my brother told me. I recall the last time I saw him alive, what he was wearing and the shoes he had on. Above all, I recall the #1 lesson that I will always cherish. My bro was adamant about completing his homework right away. This was very true especially on weekends. To him it was mandatory to get his homework done on Friday. He valued the idea and peace of mind of having it done so that he could enjoy the weekend without distraction. He never had that worry in the back of his mind that he needed to carve out time to do his homework or chores for that matter. It is this peace of mind that I believe is of extreme value.
I share this with you because I find that in planning, we spend too much time trying to find the best value at the ultimate lowest cost. Procrastination sets in and before we know it days, months, then years pass us by. I encourage you to reach your milestone with confidence have crush your life insurance needs out of your to do list. Whether your insurance plan is self funded or by insurance contract, I want you to have the same peace of mind that I had knowing that my homework is done and I can get back to enjoying life.
ON a similar parallel, my parents just purchased a pre-planned funeral. While this is a great subject for a future post… Wow! They were excited to tell us. Yet, they did not realize that they had purchased a life insurance policy in the process, that’s how they work. In their mind, they purchased “peace of mind”, they solved for confidence. I am happy that they did. The thoughtfulness and courage it took for them to face their own mortality is commendable. Not only are they confident that their death will not be a burden, but they are rightfully proud that It is done. They do not have to hold on to that idea any longer. That is freedom. While it was arguably not “mathematically” the best move, it was their best move. Good for them!
Jose, Hoser, Joe from the Show!
P.S. I am not here to convince anyone that Insurance is a great investment tool; the math does not bode well for children’s policies as smart savings tools. Insurance is best used for your peace of mind. To talk you out of purchasing Life Insurance for your child or grandchild is not my mission either. There are too many articles, one sided views on why not to purchase life insurance for kids. As stated earlier, even Ric Edelman, the New York Times Bestseller, suggests children are the one group of people who never need insurance. My buddy is right in his math, but wrong in his advice. In his defense, I believe that he was directly referencing expensive permanent policies being sold as something they are not, great savings tools.