Should You Buy Life Insurance Policies for Your Kids?

Life insurance for a child is a waste of money at precarious time in parents’ lives. New parents are hit from all sides with advice to buy everything that their newborn needs including a lot of things that are unneeded. The bombardment of advice, new baby items needed and financial requirements seems to only get worse if it is their first child due to a parent’s uncertainty as well. Parents have their children’s best interest at heart, but there is one thing that a new parent should not worry about: Parents do not need buy life insurance for their kids.

Life Insurance Is for Replacing Income

The primary purpose of life insurance is to replace the loss of income. Adults insure each other to protect the people in their family who rely on their income to live and survive. If an adult’s income suddenly vanished one day, a family could be left in dire straits if not properly insured and protected from that loss.

Unless your children are child actors or other Hollywood star, there is no income that a parent would need to protect with life insurance for a child. You do not depend on income from your children and will not be financially devastated by their unfortunate death. You should not buy insurance against a child’s life.

Guaranteed Insurability Is Very Limited

Many insurance agents will make the selling point that you can insure your child early in life with guaranteed insurability or an option to turn the policy into a whole life insurance policy at age eighteen. This would protect your child from becoming uninsurable should he or she develop a devastating disease early in life that would make the child uninsurable for a regular large value term or whole life insurance policy.

While this argument is true, the amount of life insurance that a parent will buy for a child is usually very small. Therefore, the amount of regular insurance that is eligible to be converted when the child turns eighteen years old will ultimately be small and inconsequential as well. The cost of guaranteed insurability and transferring the policy to a grownup version at age eighteen is not worth the price for such a small benefit.

Use a 529 College Savings Plan as Insurance Instead

Recently, an insurance agent quoted the price of a new life insurance policy for my wife and me. He also made sure to recommend life insurance policies for our two small children who are still in elementary school as well. God forbid something happen to a child, but the only amount of money that you really need upon their death is enough for funeral arrangements.

One of the most important things you can do for your child is to invest for his or her college education. 529 College Savings Plans allow you to make after tax contributions to investments that grow and can be withdrawn tax free as long as the funds are used for education expenses. One of the provisions of the 529 College Savings Plan is that you can withdraw the money penalty free should the beneficiary child die before they are able to use the money for educational expenses.

Raising a child is expensive enough without having to wade through the barrage of expenses being thrown at a new parent. Recent estimates found that it will cost a family almost a quarter of a million dollars to raise a child to the age of eighteen. In that case, save your money for more important things that your children such will need such as a college education rather than spending it on unneeded life insurance.


Hank Coleman is the founder of Own The Dollar and several other financial websites. He is a freelance writer, entrepreneur, and professional in the government sector. Hank holds a Bachelor’s Degree in Business Administration, a Master’s in Finance, and is currently studying for his Certified Financial Planning (CFP) credentials. Be sure to follow him on Twitter.