Sunday, June 23, 2013

Life Insurance On Your Baby

A life insurance on your baby? Although there is much controversy around the subject, we feel that the answer is yes! Whenever we have the opportunity to utilize information or products to enhance our own or our baby's financial well-being, we must consider them (that is, the information and products). 

Not giving any consideration to life insurance on a child, we feel, is plainly irresponsible – no matter the controversy. After all, would you stop investing in the stock market because of all the negative news about people losing much of their life savings? Maybe yes, maybe no but first you would consider all information.

Below are some of the most common advantages and disadvantages of having a life insurance on a baby.

Advantages of life insurance on a baby

This type of insurance presents many very valuable opportunities:

Insurability – although most babies grow up to be healthy, if your child develops an illness later in life, he or she may have to pay much more for life insurance or may not be able to get any life insurance at all. When a parent gets a policy while the child is young and healthy, they have essentially protected that child's insurability for the amount in the policy plus any available future increases (when a rider is included).

Cash Value – Whole life insurance plans may build tax differed cash value which can be used for anything you or your child wishes. If the original idea was to have a College Savings Plan but the child changes his mind, a "Whole Life College Savings Plan" can be changed to anything you wish without any penalties.– Low risk 

Death Benefit – Although the death of a child is very remote, in that event, the death benefit can pay for funeral expenses and unpaid medical bills. In times of emotional stress, the last thing you need is added financial stress.

Financial Aid - The money may be sheltered from the financial aid need analysis process and so has no impact on financial aid. 

Disadvantages of life insurance on a baby

 Low rate of return - There is no question that the same amount of money placed in a mutual fund, for example, will likely perform much better than a very conservative whole life insurance policy.

Death benefit unlikely to be used – With people living longer and death statistics on a child being so extremely low, it is unlikely that the insurance company will ever have to pay a death claim on a baby's life insurance.

Premiums not deductible on life insurance – Unlike contributions to retirement accounts and some college savings plans, premiums on whole life are not deductible. This may give qualified savings plans (even at conservative rates) a considerable advantage over whole life insurance.

Having life insurance on a baby stirs up a lot of controversy but, the bottom line is, this is a very personal choice. For some it is mainly a financial decision while for others it is more emotional (as with grandparents who may feel that is a good way to give a long term gift to a grandchild). Parents need to do as much research as possible on the subject before deciding. Please, always feel free to ask us questions.

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