Life Insurance For Your Kids: Creepy, But...
Should you purchase life insurance for your kids? There are already many personal finance articles telling you no, but Jeff Opdyke put the reasoning in the neatest way by sharing his struggle in his WSJ column.
Let me summarize some rational and/or emotional reasons below:
1. Do you want to benefit from the death of your kid?
2. Kids don't produce income, so the only tangible loss is burial cost. Do you really need an insurance to cover the small cost of burial?
3. Think insurance as a saving tool at the minimal? Life insurance for kids can hardly be an efficient saving vehicle. Try tax-advantaged 529 plans or Coverdell Education Saving Accounts for your kids' college expenses.
To put it into perspective, GerberLife.com offers to provide $10,000 coverage to my 2-year old at $7.28/month (WA Grow-Up Plan). The rate is guaranteed until my kid turns to 21, and the cash value is equal or higher than the total premium paid after 20 years. Coverage can be as high as $20,000. (Yes, it is Gerber the baby face -- do you know Gerber is also in the business of insurance writing?)
By simple math, I need to pay $87.36 a year for $10,000 benefit. I don't think I will be in short of $10,000 for the rest of my life, so the insurance coverage really does not mean anything to me. Think this as saving? Is less than $100 a year enough to cover the college books, not to mention tuition?
My kid's college is still 16 years away, but I plan to start a Coverdell account by next year -- of course I expect my kiddie to complete at least a 4-year college, and it does not hurt to take some tax advantage in the process. (Why do I prefer Coverdell over 529 plans? Let me find some time to discuss that next time.)
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I agree that purchasing life insurance for children is a complete waste for almost everyone. Setting aside money for your children's future is the way to go.
I noticed that you are planning to open a Coverdell acount for your kid. I'm also planning to do the same. I'm interested in knowing what broker you are going to use for this account. I'm having a hard time figuring out which brokers allow Coverdell accounts and don't charge excessive fees. You know you can also have a 529 in addition to the Coverdell account. I have a 529 account in order to take advantage of Virginia's deduction for 529 contributions.
I look forward to more discussion on this topic in the future.
I agree wholeheartedly with you - unless there's a financial need, I don't see any need to life insure my children either.
What I do have is a 'children's protection rider'. My life insurance policy has a rider that covers all of my kids from something like 10 days to the age of 18, for one price. I forget what it cost exactly, but it's negligible; $20 or $50 per year for 10K of insurance and covers all my kids.
The other thing that it does IIRC is that they can chop off the insurance when they get older into their own individual permanent policy. Just in case for some reason they can't get insurance.
I'm pretty sure most life insurance policies will have a similiar feature. Unlike a seperate policy, I think it can be a cheap way to cover the burial costs without going whole hog into a seperate life insurance policy for them.
