Protecting Your Child's Financial Future with Life Insurance
Planning for your children’s future is an important part of parenthood, whether you’re saving for college or making sure they are taken care of if something should happen to you.
But what if you could help your child plan even farther into the future? Believe it or not, life insurance can help you do that. That’s because buying a policy on a child can provide him or her with a lifetime of benefits you might not be aware of.
“There’s no other type of asset that leaves children so well prepared for the future,” said Hugo Alves, a financial advisor with Northwestern Mutual.
Alves believes there are three reasons to consider buying permanent life insurance for your children.
1. Lock in future insurability. Even if you don’t think you need a death benefit for your children now, someday your children may need one when they have a family of their own to protect. With certain policies, you can protect your children’s ability to buy more life insurance in the future at rates based on their health now. That means if they were to get a disease like diabetes, which would make it much more expensive or impossible for them to get life insurance in the future, they would be able to buy coverage based on rates as though they were healthy.
“The underwriting requirements are far less stringent for children, so it’s often a lot easier to purchase life insurance when they are young,” said Alves.
Policyowners can also buy additional coverage at specified points in the future without having another medical examination for underwriting purposes.
2. Accumulate savings. If you buy a permanent life insurance policy for your child, the policy will build cash value over time. That’s money that will grow tax free. You or your children could use that money as collateral for a policy or bank loan to pay for things like a college education, a wedding, or a down payment for a house.
When you buy a policy for a child, “the premiums are much lower, and you have a longer time for the money to compound,” said Alves. “The amount initially invested in these policies is far less and the benefits far greater than if you waited to buy life insurance when you’re 30, 40 or 50.”
3. Set yourself up to have a financial talk. At some point, you will want to turn the policy over to your child, perhaps when he or she graduates from college. That’s a great opportunity to talk about the value of financial planning with children at a time in their life when most young people aren’t concerned about the topic.
“Many parents have trouble getting their kids to think beyond today,” said Alves.
But seeing the tangible results of a policy that has accumulated a substantial amount of cash over a 10-, 15- or 20-year period can be an eye-opener for a young adult who has never thought about financial planning. You may even want to ask your financial planner to lead the discussion.
“It encourages a planning conversation at a younger age,” he said. “It puts them well ahead of their peers who may not even talk to a financial planner until they’re in their 30s when they have a mortgage and kids competing for their dollars.”
“Children come to appreciate that their parents thought about their future,” he said.