By Michael, on July 31st, 2012 
Do your children need life insurance? Is it a valuable investment or a waste of money? The debate is heated, and there are several pros and cons of purchasing life insurance for your kids. Carefully consider all the aspects of any available policies before making a decision for your family.
Death Benefit
The primary advantage of life insurance is its death benefit. Most adults purchase life insurance to provide income for their families when they are no longer around to support them. Since children are not typically the breadwinners in their families, income replacement is not a major issue. First things first, parents should always make sure they have adequate life insurance before purchasing a policy for their children. However, families may need money when a child passes away in order to cover funeral expenses or pay for medical bills. A small term life policy is a cost effective alternative to whole or permanent policies; adding your children to your policy costs even less.
Future Insurability
Unfortunately, adults with chronic illnesses or permanent disability often find it difficult to purchase affordable life insurance. Although it is impossible to predict a child's future health needs perfectly, many parents choose to insure their children early to protect them from this scenario, especially when chronic conditions run in the family. Unlike term life insurance, permanent life policies do not expire and can decrease costs significantly over time if your child does end up with a lifelong health problem. On the other hand, most adults can find insurance coverage when they need it. Even if you do decide to purchase permanent life insurance for your child, premiums may be high at a young age. Deciding how much coverage your child will need later in life is also difficult to know when they are young.
Cash Value and Savings
Several families buy whole or permanent life insurance for their children because of their saving and interest earning potential. Ideally, the interest earned by these policies could eventually cover the premiums and provide your child with free life insurance. When they are older, children can also access the cash value of the policy to pay for large expenses such as college or a home. The value of the death benefit decreases if people borrow money from the policy, but they can repay the loan later to regain the full value of the original policy. Setting up such a policy when a child is young can be a great way for a family member to leave a child with strong financial footing in their adult lives. Although life insurance can provide savings opportunities, it is important to remember the primary function of life insurance is the death benefit. If you are looking to create wealth for your child, there are plenty of options besides life insurance. Interest rates are usually quite low while administrative costs are high for these plans; sometimes the net gain for them is nothing.
Ultimately, there is no formula to decide if life insurance is right for your child. Talk with your family and look at life insurance quotes online to determine if it's right for you.
Byline: George Anderson is a freelance writer who writes about insurance, which you can compare at Kanetix.
Picture Credit - Siegfried And Jensen
