The purpose of any insurance is to offset possible future financial losses. We can learn from the following examples:
Tom and Sara had three children, two boys and a girl. One of their sons died at the age of five. Nobody wants to imagine a child dying, but unfortunately it sometimes happens. They had to borrow money to pay for the funeral and other last expenses that arose. Now, whenever they make a loan payment, they are reminded of their loss.
Sara took some time off work to deal with her grief and to help their other two children adjust. This further strained their finances and threatened their relationship.
Grace and Kevin have two daughters and their youngest developed juvenile onset diabetes when she was 11. Fast forward twelve years and she is about to get married. It is virtually impossible for her to get affordable life insurance today, yet she and her new husband have certain obligations they would like to cover, like a mortgage and car loans.
Ted and Lynda are excited about their son’s upcoming trip to the Middle East, but they are also concerned. Their son has skydiving as a hobby and with an extended stay overseas, he is unable to get life insurance. He also runs the risk of contracting a serious illness in the areas he will be visiting.
Sam and Debbie have two young children. Their son was struck by cancer and needed extensive treatment. As Debbie earned the higher income, Sam stayed home to help their son battle his disease.
They also needed to pay a caregiver to look after their daughter while Sam took their son for treatments and doctor’s appointments. This added further strain to their already fragile financial situation.
Life Insurance can generally be purchased on a child’s life anytime after 14 days of age. A permanent type policy usually has level premiums for the child’s life and they may qualify for a non-smoker premium reduction at age 18. Some plans are designed so that premiums last only for a set number of years and coverage will remain in force for the child’s life.
Additional benefits can be added to a child’s life insurance policy. A guaranteed purchase rider allows the child to purchase additional insurance, regardless of their health, occupation or hobby, at certain ages or on certain events, like marriage or birth of a child. A rider can be added to cover the premiums if the owner of the policy becomes disabled or dies.
Some parents and grandparents use the build up of cash values in a permanent policy as a way to accumulate and transfer wealth to a child or grandchild. Current tax laws allow this on a tax-preferred basis.
A critical illness insurance policy for a child can provide the funds needed to cover the additional costs that arise if a child gets seriously sick.