Do Children or Babies Need Life Insurance?

Having a baby isn’t just about the joy and jingling, or getting the right clothes, or finding out the best place to buy a baby mattress, or what kind of car seats you should have. One has to think about the other expenses that would arise down the road. When we think of life insurance it is usually the adults in the family that come to mind. But as most mothers in America know, shortly after the newborn arrives the offers for child life insurance begin to roll in. Many women are accustomed to leaving the hospital with the information tucked inside one of the little supplies bags that companies leave for distribution.

Even those who are not familiar with what life insurance is all about often pause to wonder if they should have life insurance on their children. To make that decision, it is a good idea to first consider the facts, as well as the support for and against doing so.

Defining Life Insurance

Life insurance, according to most financial experts, is a means of giving financial support to family members (or whoever the beneficiary is) upon someone’s death. Typically, parents would take out a policy so that in the event that they die and still have minor children, there will be funds to help take care of and provide for them. Since children don’t typically provide any income to the family, it comes into question whether or not one would need to place life insurance on them.

According to the American Pregnancy Association (APA), child life insurance is a policy that is taken out by the child’s parents. It is usually purchased in amounts from as little as $5,000 up to $50,000 or more. If the child were to die while being under the policy, the parent or beneficiary would receive that sum of money. The money can be used to help offset funeral costs, be donated to a charity in the child’s name or to pay for any medical expenses.

Suppose a young child’s parents took out a $20,000 life insurance policy and a couple of years later the child was in an auto accident, spent a month in the hospital and then died from the injuries. The beneficiary would be able to take the life insurance payment and pay for the funeral and use the balance to pay for any medical bills that incurred while being in the hospital.

The Case for Child Life Insurance

It is not all that common for parents to purchase life insurance on their infants and toddlers, although I believe there are circumstances where it makes a considerable amount of sense. This brings up a point that many parents considering life insurance for their children should consider, which is how their finances may be impacted if their child were to die. While children may not contribute to the family finances, a likely scenario of a family with a child dying is that one of the parents, if not both, miss time from work, causing a financial loss.

A typical life insurance policy for a 2-year-old boy, for example, would run around $3.70 per month for a $5,000 policy, while a $10,000 policy would be around $7.20 per month. Parents can consider this when making their choice, along with the fact that according to the National Funeral Directors Association, the average cost of a funeral in 2004 was $6,500.

If something tragic were to happen with one of young children, there is a certainty the parents would need to take considerable time away from work to grieve and regroup as a family. Therefore, having a moderate amount of life insurance as a ‘safety net’ would allow the needed recovery time without threatening the family financially on top of everything else.

Additionally, some people sees this as a secondary benefit, which is that it can provide guaranteed insurability and a lifetime insurance benefit for the child as he grows into adulthood, and the child can assume the payments when he becomes financially independent. The cost of the coverage is of course very low and in most cases would be constant and manageable for a 20-something to take over on their own.

On the Other Side

“Life insurance for babies sounds like a scam to me,” says Dr. David Olsen, a pediatrician in Traverse City, Mich. “If a baby tragically dies, is the insurance supposed to pay for funeral expenses? I’m far from being a fiscal genius, but it seems to me a few dollars a month in a bank account would eventually accrue enough money to pay for this exceedingly rare possibility.”

The APA states that it is unlikely that a child will end up using the life insurance and that most adults can get policies when they are adults anyway. When it comes to saving money each month in an emergency reserve or paying for monthly life insurance premiums, many families may not be able to afford either, making it that much less desirable.

The Bottom Line

Families will need to weigh pros and cons regarding child life insurance and make what they think is the best decision for their family. Some companies offer low premium policies that may bring a sense of security and comfort to a family when they consider the possibilities of what can happen. Others feel they wouldn’t need the help it provides or that it’s something they want to consider regarding their children. The final decision of whether or not child life insurance is worth it comes down to each family.

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