Life Insurance For Children: Never Buy It – Here’s Why

by Neal Frankle, CFP ®

Should you buy life insurance for children?

No. Never. Forget it. Bad idea. Life insurance is a tool to protect your family. There are two ways this tool helps your family.

1. Protecting You from Estate Tax

This is what whole life and universal life are for (and these insurances are ONLY for that purpose). With the recent change in estate tax law allowing people with up to $5 million to die estate-tax-free, fewer and fewer people will need whole life, thank goodness.

2. Providing Income When You Can’t

The second reason you buy life insurance is to replace income in case you aren’t around to produce it — and people you are responsible for depend on your income. (People usually buy term insurance for this purpose.) That’s it. There are no other reasons to ever buy life insurance.

So, unless your kid is Justin Bieber, you don’t need life insurance for your children because they don’t have to worry about income replacement or estate tax issues. They’re hopefully too busy being kids. They aren’t out there earning a significant amount of money, so why would you need life insurance?

Of course this is where the crafty insurance agent who sells permanent life insurance will sometimes step in. He’ll try to convince you to buy universal life insurance for your kids as “the best investment you can make.” Do not fall for this, please. If someone starts talking about this to you, just tell them to shut up and show them out. Say nothing. Fake appendicitis if you have to. Just get rid of them. They are snake oil salesmen and nothing more.

Here’s why I say this. Arguing that children need life insurance rests on the argument between term life insurance vs. whole life insurance.

Whole or universal insurance is often presented as insurance with a savings vehicle. The misguided salesperson tries to convince you to use this insurance as a way to save for your kids. I like saving for kids, but I hate life insurance for the little tykes. Even though the life insurance costs are relatively low for youngsters, it’s a complete waste of money unless you are Mama Bieber.

The problem is that the administrative cost of the life insurance is so heavy that it eats into any returns the savings makes. Also, the investment choices that universal insurance offers are very limited.

If you are interested in saving for your children’s future, which I am sure you are, why not do so with the lowest cost and greatest choice? Making a conscious choice about this is also a great way to teach kids about money. Don’t saddle yourself with crappy insurance for kids. It’s a complete waste. If anyone tries to tell you otherwise, they are insulting your intelligence.

Now do you want me to tell you how I really feel about this?

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