The topic of buying life insurance policies for children has sparked an ongoing debate, questioning the appropriateness and necessity of such purchases. While some parents view these policies as valuable financial tools that contribute to a broader savings and investment portfolio, others argue that they are often unnecessary and wasteful, as they rarely replace lost income.
It's important to differentiate between term life insurance policies, which are less expensive, and permanent life insurance policies that allow cash value accumulation for future use. Many people opt for permanent life insurance for children to protect their insurability into adulthood, but it's worth considering alternative methods for saving money, especially if there is a need for a college fund.
Alternatively, some individuals may choose to include a child term rider on their own life insurance policy. These riders are typically low-cost and primarily cover funeral expenses, as the benefit amounts are not substantial.
Sales agents promoting whole or universal insurance often present it as insurance coupled with a savings component. They may encourage using this type of insurance to save for children. However, despite the relatively low costs for young children, it can prove to be a waste of money. The administrative costs associated with life insurance eat into any potential returns, and the investment choices within universal insurance are often limited.
If your goal is to save for your children's future, it's generally advisable to pursue options that offer lower costs and greater flexibility. Making a deliberate choice in this matter also provides an opportunity to teach children about financial matters.