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Should You Buy Term Life Insurance for Your Children?

By Compuquotes Team on March 27th, 2008

The question of buying life insurance for children is one of the most emotional and hotly debated questions in the life insurance industry. On the one hand, opponents will tell you that buying term life insurance for your children is a waste of money. The purpose of life insurance is to replace a breadwinner's salary and children seldom have an income that needs replacing. This is true, as far as it goes, but it misses the larger purpose of insurance in general - to provide money to cover losses in times of trouble.

The death of a child can carry unexpected financial losses - losses that people don't like to think about. Beyond the cost of a funeral - which is often as high as $10,000 - there are lost wages, the need for counseling and often, medical expenses that are not covered by typical medical insurance. A term life policy can cover the cost of a funeral, provide a financial cushion that allows for extra time off from work, and help with the costs of counseling for bereavement. Some parents use the benefits from a child's life insurance policy to make bequests or establish memorials that give them solace and a sense that at the very least, something good came of their loss.

In addition, many term life policies for children are combined with disability policies that will pay a benefit if your child suffers an accident that causes the loss of a limb or an eye. Those benefits can offer a cushion that can provide care above traditional medical policies and help pay for special accommodations and training that might not otherwise be covered.

Term life insurance is relatively inexpensive. In most cases, you can purchase up to $20,000 in insurance for less than $20 a month. Many financial counselors will tell you that those $20 could be better spent in another way - put in a savings account to yield earnings, perhaps, or saved and invested in mutual funds. Again, the advice is good as far as it goes. Over the course of 20 years, it makes far more sense to invest $20 a month in a college fund or savings - if you consider term life insurance to be an investment.

The fact is that it's not, and it isn't meant to be. It's meant to cover the expenses associated with a death. One writer, in arguing against term life insurance for children, made the point that at the end of two years of paying premiums of $35, he will have spent $880 and have an investment worth $56 less than he paid for it. If he'd invested the $880, he'd have a savings account worth at least $880 plus 4% interest. The problem with his figuring is this: if the unthinkable happens, and the child dies, how far will that $880 go towards the financial obligations that his family will face?

A term life insurance policy is exactly that. It is insurance to cover the expenses incurred by a death. It is not an investment vehicle. It is not a college savings account. It is not even, as many who sell insurance will try to tell you, a guarantee of future insurance for your child.

If you are considering term life insurance for your child, consider it purely on those terms. Don't be swayed by emotional arguments that tell you that term life insurance is an  investment in your child's future' or a great start for a child's financial life'. Ask yourself if you could afford the costs of a funeral and other expenses in the event that one of your children died. Then ask yourself if you can afford to spend $20-$35 a month for term life insurance. If you answer no to the first and yes to the second, then take a serious look at term life insurance products for children and get the best that you can afford.

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