The Great Debate: Is Child Life Insurance Necessary?

The Great Debate: Is Child Life Insurance Necessary?

An ongoing debate amongst financial experts revolves around the necessity of Suncorp life insurance policies taken out on young children. This has been a debate that has always drawn equal number to both sides of the fence, with some feeling it to be completely unnecessary, and some others understanding that there is need for under certain circumstances.

For most, the need to compare life insurance for your child is chalked up to being needed when it’s needed. There certainly isn’t as much of a requirement for it, as there would be for a parent who has an income that might need to be replaced, but there are certain circumstances where the argument for child life insurance makes perfect sense.

Despite that, however, statistics do illuminate that child life insurance is far from being a popular expense for economically strapped families. The American Council of Life Insurers recently conducted a study to determine the popularity of child life insurance and the results showed that only 15% of persons under the age of 18 have life insurance.

When Child Life Insurance a Good Idea

The most compelling argument for the merit of child life insurance is for children who are battling serious, life-threatening, illnesses.

If the child dies from this illness, a little financial security for the family could be beneficial during these unimaginable times of grief. Usually, these insurance policies are for no more than $5,000 and can cover funeral expenses that the family might have struggled with.

If the child survives the illness and grows into adulthood, they could also benefit from being insured early in life as a life-long medical history will sky rocket rates, even in their 20’s.

Why Child Life Insurance is Argued to Be Unnecessary

In opposition of child life insurance, the main argument is simple: there are better investments that can be established to financially secure a child, or a family. Most often, a 529 plan is referenced as a better alternative to child life insurance, because it actually provides an investment opportunity, where term life insurance policies do not.

A further argument against the necessity of child life insurance calls these policies an outright “abuse” of the system. Life insurance’s primary objective is to replace income no longer generated by a deceased family member, in order to provide for the deceased’s loved ones. Since a child does not generate income, or support dependents, the idea of child life insurance is often seen as an unethical abuse.

One such believer in this sentiment is Bob MacDonald—Minneapolis-based Allianz Life of North America, Chairman—who uses his 40+ years in the insurance industry to state, “I’ve always felt purchasing life insurance on children was an inappropriate waste. It’s much more appropriate to put it into vehicles that will benefit (the children) while they’re living, because the chances are very good that they will. If you take and put the same amount of money into a mutual fund or an annuity, you would have ended up with more money in cash than you have had as a face amount of a policy. You are paying mortality charges and fees that are simply not necessary for a child.”

~Guest post