Term Life Insurance For Your Kids - A Touchy Conversation

Many large employers will start to begin their open enrollment for health and other benefits they offer their employees. While you happily place your dependents on your health insurance plan, rarely does one think to purchase a term life insurance plan for their child. 

"It was something that took me back when I was asked if I wanted to buy a plan for my two kids," said Jessica, mother of two girls. "It felt like I was planning the death of my children, I honestly felt a little sick about it." 

This is a common reaction reported by human resource departments. Many employees would not think about the financial burden if a sudden death of a child were to happen. The mentality that your child will outlast you is typical, and in most cases happens. But, planning for the worst doesn't mean you are planning for the death of your child(ren), it means you are responsible preparing to take one of the many burdens you will face if that happens off your plate. 

The average cost of a funeral is between $3,500 and $8,000, and that doesn't include the burial cost which can be $900 to $1500 depending on your metropolitan area.

"When presented with the facts, I still felt sick about getting term life insurance plans for my daughters, and I knew it was the right thing to do." 

Let's break down some of your options:

Term Life Insurance Extenders

Based on your companies benefits you may be able to buy some coverage in your child’s life if you purchase a term life insurance policy covering yourself. Term life insurance provides coverage for a period, such as 10, 20 or 30 years, and pays a death benefit to the beneficiary if the insured person dies during the term. This is the only way to buy term life insurance for a child; there aren’t standalone term life insurance policies for minors.

Permanent Life Insurance Policy

A permanent life insurance policy, such as whole life, will cover your child. Traditionally these can be a small face amount, such as $50,000 or less. Permanent life insurance provides coverage for someone’s entire life and includes a savings account that may gradually build value over time. Premiums are much more expensive than traditional term life. Many policies have options that allow you to "cash out" your child's policy when they turn eighteen and use it for their college tuition. So while it may cost more upfront, when you cash out at eighteen, you may have more than what you've paid in to assist with college. 

According to a survey of 2,000 adults by industry groups Life Happens and LIMRA, only around 20 percent of parents and grandparents say they have purchased coverage on kids. 

The chances of you losing your child are slim, but having a plan in place can help ease the stress and emotional struggle you will go through in the event the unthinkable happens.

Do you have term or whole life insurance on your child(ren)? Share your thoughts in the comments below or email us at HomeBase@LifeCycleDiaries.com.