The letter typically starts like this: “Are you concerned about your young loved ones’ financial futures? You can give your child or grandchild a lifetime of protection.”
It’s a marketing pitch for buying life insurance for your children or grandchildren, and the message stirs emotions.
It’s also a financial decision many families wrestle with, especially since life insurance is not normally a product associated with young children.
A lot of this is sold through direct mail by companies such as Globe Life and Accident Insurance Co. and the Gerber Life Insurance Co., a subsidiary of the baby food maker. The sales pitches and special offers also run pretty heavy this time of year because more babies are born in August than any other month.
Life insurance generally is supposed to help replace income if a breadwinner passes away. But unless your baby lands a title role in a Netflix miniseries, there won’t be any financial contributions going to the family that need to be covered.
For that and other reasons, many financial advisers recommend against buying life insurance for a child. But there can be circumstances for considering a policy. For one, coverage will probably never be cheaper, meaning you can buy a large amount of insurance at a low cost.
But is it money well spent?
If you are considering buying life insurance for a young one, it’s always good to step back from the sales pitches and weigh your needs and your child’s needs before writing a check.
Some shopping pointers to help you make the best decision:
What’s your objective? “Focus first on your goal, not the product,” said Lucas Bucl, a principal with KHC Wealth Management in Overland Park.
For example, if your objective is to save for college, then putting money into a 529 college savings plan or another investment is probably a better choice than tapping the cash value built up in your child’s life insurance policy, Bucl said. But if you’re concerned about having funds to cover funeral arrangements and other final expenses, then buy insurance.
Are there family health issues? If there’s a history of illness in your family, such as a genetic disorder, you might want to buy a policy for your children, said Bucl. That way, they won’t be deemed “uninsurable” later in life or make a policy much more expensive.
What type of policy is the best fit? Generally, your choices are term insurance, which provides coverage for a set number of years, and whole life, universal and variable plans that provide lifetime protection and accumulate cash value.
Many parents buy a whole life policy for their children for the sole purpose of having the cash value available to them when they become young adults. It’s money available for a car, a down payment on a house or some other plan to get their kids started in life.
What about fees and other charges? Keeping your costs low may not be at the top of your list when choosing a policy, but it’s pretty darn important. Ask about annual charges, fees for borrowing against the cash value of the policy, sales commissions, and other expenses and limitations. Look at multiple companies.
Given all the pros and cons, the bottom line is that there’s no universal answer when it comes to insuring your kids. Size up your family needs and financial objectives and shop carefully.
Steve Rosen is assistant business editor at The Kansas City Star. To reach him, call 816-234-4879 or send email to firstname.lastname@example.org.