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.
Note: Buying life insurance on kids is only one of the big mistakes people make when it comes to life insurance. There are a host of other issues you should avoid as well.
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?
Jay says
Good article and I can see your points. However, I am curious to hear your thoughts on this scenario – purchasing a 10 – 15 year paid up whole life insurance policy from a mutual for your child (insured person) to ensure some form of an inheritance for them when you pass away (cash value) and a death benefit for the grandchildren (beneficiaries) when your child passes away considering (1) there is a reasonable likelihood a middle-class individual may be required to go into a nursing home or need elderly care with the assistance of Medicaid which I believe requires a pay down of assets to be eligible and (2) Medicaid may require your estate to pay back funds provided for your care when you pass. Now, I know about long-term (LT) care insurance, but LT care insurance can be expensive for a middle-class family and may be off the table when its considered in one’s older years. With that being said, I guess I could get it young but then the other question would be – Do I just get the whole life insurance policy for my child and know they will get some form of an inheritance or get LT care insurance and hope it’s enough to cover my elderly cost so I can leave an inheritance that would be larger than the low performing whole life insurance policy. Additionally, I understand the idea of term insurance and invest the rest, but it appears there may be some other reasons to consider a whole life insurance policy on children. In my opinion, I’d rather give my child a guaranteed low returning investment as an alternative to (potentially) having to liquidate and spend a good portion or all my high yielding investments to be eligible for Medicaid with the potential for the state to recoup what is left (If any) on behalf of the federal government (i.e. n inheritance). I know there are some estate strategies that can be considered during life but as you go through life kids get older and insurance cost increase. I just don’t want to miss an opportunity to insure my child (1.5 years old) when I can. I wish there was some form of analysis on this comparison. Then again, I guess I could do it myself…maybe. Sorry for the longwinded question sprinkled with commentary and concerns! Love to hear your thoughts.
Mercedes says
Forget about the “savings tool” sales strategy, there are 3 reasons why insurance is a GREAT idea on kids
1. They’re generally healthy & don’t smoke. A policy, especially one that’s “paid up” at some point (so you can stop payments but keep the coverage), can make a huge difference in their adult lives when they maybe can’t get or afford coverage.
2. Heaven forbid something happens and you can’t afford the type of service you would want for your kid out of pocket you won’t resort to a GoFundMe page.
3. If something happens to my daughter I want enough coverage so that I don’t have to go back to work until I feel ready. So no, it’s not HER income I’m replacing, it’s MINE.
Maria says
Hi Neal. My husband and I are currently in a very similar situation as Mary was in 2014. There are a good number of illnesses/chronic illnesses that my kids are highly likely/I am afraid they may inherit. My 19 year old son, was diagnosed at age 18 with RA. I have Lupus and everyone in my family, from grandparents to my siblings have Diabetes. My grandmother passed away from stomach cancer. My husband’s side of the family all have very high/through the roof BP and his father passed away with cirrhosis of the liver at age 50. Non-Alcoholic. My husband currently has over half his liver damaged. No cirrhosis found. My son at age 15 showed very high enzymes level for his liver.
Neal Frankle, CFP ® says
I am so sorry to hear about these health issues within your family.
R. Prati says
Neal, great piece. As a PhD in finance for the past two decades, and on a national university faculty where we also teach and research in the insurance field, I have to admit I generally agree with your post. There are exceptions, of course there are always exceptions, but your two main purposes noted for insurance – term for income replacement while needed, and whole or universal (participating or not) for estate planning, are pretty much it. I cannot really justify in the limited space, let alone in a public forum, the mathematics to demonstrate it, but suffice it to say your logic is sound. I am actually sending this link to a family-member/friend to make a point on it. Thanks for saving me the trouble of writing a similar piece!
Neal Frankle, CFP ® says
Thank you Dr Prati!
That’s very kind and flattering! I am so happy you took the time to chime in. Sadly, the majority of commenters are sales agents trying to justify their sales tactics. Thanks for taking the time to express your much appreciated opinion.
Best,
Neal
Chris K says
Going through all the comments i’m having a real hard time deciding whether I agree with you or not, I see your points and understand, but I also see the others readers points they are making, very interesting topic and I think it’s almost a case to case basis.
Neal Frankle, CFP ® says
Well put Chris. I agree, it is, like most things financial, a case by case decision. Having said that, I don’t see many examples where it makes sense. Maybe a few, but not many. Thanks!
Chris says
You know my parents told me the same thing! I will 100% always buy a policy for any of my children until they atleast reach the age of 2. Here’s why. Kids die more often than you even care to know about. My son passed away at age 9 months. He was healthy no illness or problems. I even have a video of him playing the day he left us. All bc he never woke from a nap. Unfortunately 2 months later the ME made up some long fancy name for it bc they couldn’t even tell us the cause of death. Some kids under the age of two pass away from ” Sids” worst thing in the world. Shortly after my return to work from my bearevment I was fired less than two weeks latter bc i just wasn’t myself. Had I not had a life insurance policy I would have lost my home. Bc money goes fast when none is coming in. Your completely wrong on this! My personal opinion of course. And I dare you to write an article on all the ones that left us to soon, you obviously have no idea about the other side of life.
#FOREVERYOUNG
LIAM4LIFE
Neal Frankle, CFP ® says
I am sorry for your loss but you failed to read the post. Not everyone who dies needs life insurance. And thankfully, the odds are that your children will live.
Mary says
Hi,
I have a question and apologize if this has already been covered. My husband and I are thinking of purchasing life insurance for our 2 children who are 3 and 8 years old. We purchased term insurance for ourselves a few years back. This is why we’re considering it, and please let me know your thoughts… I have type 1 diabetes and did not have life insurance prior to our purchase. It was so difficult and expensive to get coverage, and all I kept hearing was that we should insure our kids now to protect their insurability in the future.
Does this make sense? We’re obviously not looking to replace their income and are in a good spot financially. I just want to protect them from the struggles I’ve experienced should they be diagnosed with a chronic/serious illness and need to insure themselves as adults. We have 30-year term policies, and although they are not large, they should cover our mortgage and college expenses should anything happen to one of us. Thank you in advance for any input you have!
Neal Frankle, CFP ® says
Hi Mary. You and your husband are obviously very responsible and caring. Kudos. With respect to your question, I would have to know more of course but I would like to know if medically your children have a high likelihood of inheriting any of the challenges you face. That would help me provide better advice. Thanks.
stoutboy says
Neal, you are fighting the good fight, but you will never be able to convince most people of the futility and poor judgment they exhibit by buying whole life for children. Americans have been brainwashed into thinking that purchasing expensive life insurance policies marks them as ‘responsible’ adults. Statistically, it is little better than flushing money down the toilet because the ‘gains’ barely keep up with inflation. It would be far better to put that money into a 529 as that is something that has an exponentially greater chance of providing the child with a real material benefit.
Neal Frankle, CFP ® says
Hey Stout! Thanks for the encouragement. It’s fascinating that 99% of the people who comment on this post are actually insurance sales people. I agree with your comments. At the same time, I understand why people think it’s the responsible thing to do – even though it’s statistically far from it. I don’t blame the consumers but I have no love for the scoundrels who sell this stuff.
Lisa Scott says
Do you have an insurance license Neal?
Your answers are generalizations that could be terribly misleading to consumers. Insurance advice should be given in the context of an insurance review – only. So much of what I’ve read here is terribly opinionated and that is why people should not make insurance decisions by reading online content.
Neal Frankle, CFP ® says
Lisa. Thanks for your comment. Yes I am licensed. Not sure how anyone could misconstrue the post as providing advice. They are general observations of course – they are not addressed to anyone particularly. They provide a background to understand how insurance works – and more important – how insurance sellers (agents) work.
Yes, I have opinions because I’ve seen the wrong kind of insurance sold to too many people for too long and I am tired of it. What exactly do you have an issue with? What specifically do you reject?
But I do completely agree that everyone has a unique situation and should have a life insurance review and never make a decision based on online content. It is by nature very general. If you are interested in a review, connect with me..
Nicole says
Hi Neal,
Our financial advisor has been recommend we buy whole life insurance for our son, who turns one in 2 weeks, since he was born. My grandparents bought a policy for me when I was very young but I’ve yet to see any dividends/returns so I’m struggling with the logic behind this investment strategy. When you speak of alternative investments, which do you recommend?
Neal Frankle, CFP ® says
Right Nicole. Alternatives are 529s, growth funds, etc. The 529 could be especially powerful. Here are a few articles that might help. https://wealthpilgrim.com/category/college-funding/
I wonder if you advisor is really just an insurance agent. I really don’t like the advice you got and I wonder what the reason behind it was.
Tracy says
My oldest daughter passed away and I did not have life insurance on her. I spent the next 5 years of my life paying off medical and funeral expenses…not to mention I was very depressed and had to take several weeks off of work. (meaning no income) Unless you have a child that has past away and you’ve dealt with the emotional and finacial burden that it can bring, I don’t think saying having life insuance on a child is a waste. It’s every parent’s nightmare to have to burry one of their children. Had I had life insurance on her, it would have taken away some of the financial burden.
Neal Frankle, CFP ® says
I am terribly sorry for your loss. May I ask, what were the medical expenses compared to the funeral expenses? My sense is that the medical costs were far greater and that was the big problem. Of course, I could be wrong. Again, I am very sorry to hear this story. Neal
Bob says
My son is attending a top ten college. I am footing most of the bill which after 4 years will be over $200K. I am thinking of buying a term policy for him to protect my investment in his education. What are you thoughts on this?
Neal Frankle says
It’s a good question. Let’s say he lives, is he going to pay you back the $200k? If so, you do have an insurable interest and it might make sense. If the plan does not include him paying you back I would not buy the insurance because financially you are in the same situation either way. Does this make sense?
Pat O'Hara says
I totally disagree too, even to the point where I believe your advice is irresponsible. Most of the reasons why have already been mentioned, but to me the biggest ones are guaranteed insurability and lifetime benefit. My father bought me a whole life policy and the premium vanished on it many years ago (I am now 54). This coverage is now paid for for the rest of my life and I can rest easy knowing my family will not be burdened with my funeral expenses. It’s one of the best things he ever did for me.
Neal Frankle says
Pat,
I am glad you are still here to tell the tale. But that only proves the point. Most children survive – like you! And are you sure that you won’t have the money to pay for your funeral when you go? If you compare it to alternative investments your father could have made for you, how does it look?
Myrtle Beach Insurance says
What about getting insurance on a child who can never get it again due to a health condition? Get a policy on them at 15 days and they’ll have insurance for THEIR family in the future.
Neal Frankle says
This is a good question. I’ve explained in the post why this not really a good reason to buy the insurance.
Judy says
I disagree with you. Getting a life insurance policy for your kids is the greatest and smartest gift you can give to your children. It locks in their rates so they won’t worry about paying too much of a premium when they get older(depending on the insurance carrier), because eventually they will want to get one when they get older. And it gives you a peace of mind that they will be covered. Some insurance carriers have great products like the index universal life insurance where you can earn cash value at an increase rate, higher than universal life. Wouldn’t it be nice if you can get life insurance earlier for your kids so when they grow up they have a significant amount of cash value already waiting for them once you switch policyholders?
Rourke GT says
Although I agree with you in some points, the product (Indexed Universal Life) that you’ve chosen is one of the unhealthy products that will eat most of your earnings now and later due to the ever rising cost of insurance leaving your child again at risk. Just in case, just in case a child becomes diagnose with a disease that he or she becomes uninsurable, having some form of life insurance is probably a good idea to think about for the child’s sake. But again, a participating whole life policy from a Mutual Insurer would probably make more sense if you plan to buy it as a gift for your child so they can take over the payments once they are independent. I would agree more with Neal because life insurance is for income replacement. Take another step and add a children’s insurance rider to your policy would probably make more sense, just in case something does happens so that the parents can take some time off of work to recover and use some the insurance to pay for funeral expenses, or if the child later is uninsurable, at age 25, they can convert their children’s insurance rider into a permanent policy for at least 5x’s depending on the company they’ve selected.
Misty Streminski says
I understand about the burial costs which is why I am looking to purchase LI for my kids, However what a lot of people don’t think about is, how long would it take you to recover? If something were to happen to one of my kids I couldn’t go back to work the next week? How will I pay my bills and continue to care for my other children? LI has several benefits it is just a matter of getting the right policy for your needs.
Mia says
I don’t think one should say it’s always a bad idea to get life insurance for a child. I’m considering it because I’m now a single mom of two teens, and I’m on disability. We barely make it from month to month, and every time I get a little saved up there’s the inevitable emergency. If, God forbid, one of my children died, there’s no way I could afford even the most basic funeral expenses.
Neal Frankle says
Mia, I see your point.
Rourke GT says
You set your standards Mia, everyone should have their own individual standards to follow. It’s good that you think about the future unexpectants. Most individuals who live on a month to month basis do not even have anything plan for the unexpected. I sometimes see friends and family members out on the streets holding signs and yelling for donations or doing car wash donations for funeral expenses. I sometimes feel very sorry for the family, but why didn’t they put that upon themselves and at least think more like you. Some individuals would rather have a nice iphone or smartphone rather than insuring themselves and their children for the unexpected. Hooray for you Mia for planning ahead.
Nathan says
I’d have to disagree with this post. I’d rather get insurance for my child now at a fixed rate with cash benefits than leave my child with nothing when they get older. I had no life insurance when I moved out of my parents, I have a slew of medical problems and term life for me is VERY expensive. My parents are also on the verge of death, they were sold term life insurance which expired and now there is no insurance plans that they can afford(we’re talking 300+ a month for 10k). What kind of burden do you think this leaves for their children? Quite a large one. I don’t want my child to have that same burden with her children. It is very stressful to think, what happens to my child if I pass away?
Bottom line, my parents were sold on the idea that term insurance was all that was needed for their child. Now that I have a child of my own, I wish i had a better life insurance plan just in case something happens to me which is likely before my child even gets out of college. Sometimes peace of mind is worth it, you never know with this world.
Mark says
One of the reasons stated in the comments section about perhaps why you might buy life insurance for children is to cover burial/funeral costs for the child. I know someone who lost an infant, and the funeral center’s policy was “no charge” for children. I’m not sure of the details (e.g., the age limit cutoff, or if there were other fees and charges that weren’t covered, etc.) but that might be something worth thinking about when considering whether to buy life insurance for children. I never could find any details on that on the web.
Dathan says
Hey Neal, I don’t know what world you live in, but it’s obviousely not the same one most of the itteligent world is living in. Child insurance is the best thing you could ever do for so many reasons Many people have already posted their valid oppinions that make since…
Mark says
Here’s what may be an interesting question. At a low enough cost, it would be crazy to not get at least *some* child life insurance coverage, for example, to cover burial expenses or medical bills, etc. My situation is that I can get child life insurance coverage through my very-large employer. And I have 4 kids so I have higher odds of needing child LI than someone with fewer kids.
For $2500 coverage, it costs just $2.40/yr;
$12,500 costs $11.52/yr;
$25,000 costs $23.28/yr;
$37,500 costs $33.60/yr;
$50K costs $46.32.
Seems that I should at least get some child LI coverage, but at which level do you think there are diminishing returns? Or would you still say that you would not buy child LI at any price)?
Looking forward to your reply!
Mark says
Oops. I should have mentioned that the costs in my posts would cover all 4 kids.
Neal Frankle says
That is super cheap. less than 14 out of 100k kids die age 5 to 14. Your odds of collecting are basically one tenth of 1%. The odds are against it happening. The basic rule of insurance is to insure against something with a low likelihood (this qualifies ) and a very high cost. If you consider the burial costs high, I guess you should go for it.
I would also consider however where you live, your family’s health etc. The leading cause of deal for children is accidents followed by cancer. I personally would never buy this coverage for the reasons I stated but if your situation is different, you might consider it.
Phyl says
Yes, at those yearly costs I would DEFINATELY PURCHASE the life insurance. I don’t care what some so-called “experts” say and what “odds” they supply. This is a matter of burial insurance and yes, I do consider burial costs to be high.
Karen says
I work in Emergency Medical Services. I can tell by your thoughts, beliefs, and comments that you work in a nice cozy office and don’t deal too much with the younger public. Do you realize how many terminal illnesses that affect people at younger and younger ages? Ten years ago when I started in my field, someone who called 911 for a 15 year old with chest pain wasn’t much of a concern. It was probably a rather benign problem or a parent over reacting. Now, ten years later, I feel more like this child could die before I get there. More and more young people are dying from very unexpected illnesses that you would think you’d only see your parents or grandparents go through. Can you look at a five year old outside running and playing in the yard with the family dog and say he is perfectly healthy? Good, you and half of everyone else in America would too. Guess what, that five year old that you thought was perfectly healthy just died from sudden cardiac arrest because of a congenital heart defect that was completely silent his entire life. Guess what else, his parents were already struggling just to pay the bills ever y day. Wonder how they payed for the funeral? They refinanced their house, dealt with creditors constantly calling, and in the long run ended up losing their house in a bankruptcy. Ever turned on the news in the morning and saw a story about a crazed gunman walking into a crowded mall a week before Christmas and opening fire? I bet you were thankful your wife and kids didn’t get to go shopping that day. You may not have life insurance on your kids and what if both or all three of them were shot? Now instead of wrapping up $10,000 in a funeral, you’ve got $30,000-$40,000 in three funerals. Yeah maybe it’s typical for a family to have $5,000-$10,000 in available money but $30,000-$40,000? I doubt that. Not everyone lives a fairy tale, and kids’ life insurance is no different than any other insurance. It’s still a waste of money until you need it and it’s not there. If that was true than I guess anyone who is healthy doesn’t need health insurance either.
Neal Frankle says
Karen,
If you read my story you’ll know that I have not lived a fairy tale life. As I said to a previous person who commented, if the cost is high and the price is low, it might work. Most of these policies are ridiculously expensive given the odds.
I agree with your point however. If kids live in the equivalent of a war zone, this insurance might make sense. But a far better choice would be to do everything possible to move out. Some people do it. It’s possible.
Phyl says
Sheesh! This is just plain common sense to me.
Covering burial costs is all I was thinking of when considering children’s life insurance for my two grandchildren and my teenager. Gerber Life Insurance has $10,000 whole life premiums for under $10 per month; the premiums are guaranteed to NEVER increase; and the coverage doubles at 18 yrs of age but the premium doesn’t increase.
Someone please tell me what could possibly be wrong with just having a burial plan????
Neal Frankle says
Nothing is wrong with it if you don’t have the money to bury them in the extremely unlikely event this happens. Self-insuring is smarter if you have the money because the odds are very low that you’ll have a triggering event.
CG says
The cost of a funeral is worth the little expense of insuring a child for 5 or 10K, have to disagree with you on this one.
Billy says
Given the low cost of insuring your child along with its pros (supporters) and cons (naysayers)… why not do the proper life insurance in addition to the other avenues (529’s… Roth IRA’s… etc)???
I’m a single dad raising my 16 year old daughter. Her mother passed away from complications of MS in 2009. I have a small term life insurance policy ($250,000) on myself and would like some direction on what I can do for my daughter.
If I remember correctly, aren’t there limits on the dollar amounts of life insurance you can buy for your children???
Unfortunately I had to burn thru my 401k and IRA and am having to start fresh myself. I know it stinks at 38 years old but it is what it is and life goes on!!!
Any recommendations for myself at age 38???
Recommendations for what I can do best for my daughter???
Recommendations for my daughter to do on her own???
Thanks in advance!
-Billy
Neal Frankle says
Billy, I am really sorry that you and your daughter have gone through this terrible situation. My suggestion is to slow down just a little. If you are just starting again, the best move would be to buy more term insurance for yourself and make sure she would be taken care of. Does that seem reasonable? Why or why not?
Paul Puckett says
Neal,
I am looking forward to the use of the word “never” applied to cash value, or permanent, life insurance. While I do not believe life insurance is an appropriate alternative for investing, I can think of specific circumstances where permanent, cash value, insurance is the only appropriate choice when a guaranteed death benefit is required. Granted, this particular situation is not applicable to the great majority of Americans, but, never say never…
Have a great Labor Day Weekend!
Neal Frankle says
Paul. Agreed. Actually, I completely agree. While I do believe that you should not buy insurance on kids, I do believe that cash value insurance is the only way to go with respect to estate issues. Thanks….enjoy a great Labor Day Weekend!
Tim says
Neal,
I couldn’t disagree with you more. I am a licensed life insurance agent for 11 years and believe that IUL’s are a much better choice than say a Roth IRA. I think it is even a better choice than a 401k. Now I know that is an unpopular choice but I think the IUL’s benefits outweigh the benefits of a 401k. Everyone has been told to invest in their 401k because it offers tax deferred benefits. Why would you want to wait to pay taxes when you retire? Do you think they are going to be higher now or later with the national debt so high? And later you most likely have eliminated many tax write offs as well such as your home and kids. IUL’s can and will be the investment choice in the near future. They can offer tax free withdrawals, principal protection, tax free growth to name a few.
Also, to suggest that a person get a term policy and invest the savings, we both know that usually doesn’t happen. I think it would be to your advantage, and your clients advantage, to look at the IUL’s a little closer because in my opinion the advantages outweigh the expenses you mentioned when it comes to paying taxes later on.
Neal Frankle says
Thanks for your civil response. I respect your opinion and right to disagree. I am going to publish a post shortly on why it never to makes sense to buy cash value insurance. I will be interested to see your take.
Pete says
Neal,
There seems to be a lot of comments whose authors disagree, some vehemently, with your post. I admit it caught my eye, because I had been considering buying a whole life policy for my two children. But my reasons are very different than anyone else’s, seemingly.
I’ve heard mention, and done some of my own investigation, about the “Be Your Own Banker” concept. In case you haven’t heard of it, or know it by some other name, it is basically a strategy in which you buy a dividend-paying whole life policy, contribute toward it, and later on you can borrow against it instead of taking a bank loan. That way, the interest you pay goes back into your own policy. There’s obviously a lot more to this concept, but that’s the basic idea.
The reason I would take the policy out on my children is because the premiums on them would be a fraction of what they would be on me.
I’m curious if A), you’re familiar with this concept, and B), if you are, do you know of some compelling reason why it should be avoided.
Thanks for maintaining this informative site.
Neal Frankle says
Thanks. The rates the companies show are not contractually guaranteed. They are estimates and they are not good faith estimates in my experience. Expenses end up eating up all the returns.
shawn says
Neal, thank you for sharing your wisdom. I (32 yrs, perfect health) am considering UL because of the living benefits it can provide. For instance, I have 2 kids (4 and 2 yrs). If I contribute $1k per month for each until they’re 18, then they could have a sizable chunk in which to take loans from, and the policy would still be fully funded. Do you recommend I take another route in which to garner the living benefit I am focusing on? I am already heavily invested in the market, and my fiance and I both have $1M policies. Maybe annuities? Thanks!
Neal Frankle says
Shawn, I am going to write a post on this but the short answer is – I think a better route would be to buy term and invest. For example, if you invest $2k/month for 15 years you will accumulate $1.2 million at 6%. I don’t think the UL can get anywhere close because of the ridiculous fees involved. In all my years in the business, I never met anyone with a gain that beat “term and invest the rest”.
This is my experience and of course I could be wrong. But I would caution you against buying the UL. Oh…and btw, read this one please on annuities (which I think are not a good choice for you….)
Lisa says
I have a 5 year old and a 3 year old granddaughter. I received a whole life insurance ad in the mail and wondered what it was all about. So I read and researched and that led me here. When I first read your “opinion” I thought you were very cocky, full of yourself, and holding information back. You said it was bad but never really said why. You stated there are better means to save, but didn’ t explain them. You inferred I was crazy for even considering a life policy for children. I kept an open mind and read all comments. First thought I was surprised that you responded to so many, but your opinion never faltered. Why is it so hard to admit for many individuals this type of policy makes sense?
Heaven forbid something happen to the healthy children in my life, but if it does, our families will be able to handle the financial stress of an unbearable situation. If the policy is still in place as an adultthe can continue or cash out. How is this not a win win?
Neal Frankle says
Lisa, thanks for your comment. Most of the comments are anecdotal. You could write a post on how playing the lottery makes no sense and you’d have the people who won tell you how wrong you are. There are winners in the game of life insurance for children. But most people lose. If you know you are going to have a sick child (G-d forbid), buy the coverage. If you don’t know your child has a good chance of being ill, you should not buy this coverage.
If you read other posts, you will notice that I am very happy to change my mind on a subject – all I need is a compelling reason to do so. While many of the comments here are heart wrenching it still doesn’t mean that (all things being equal) this coverage makes sense.
JAY W says
I wish “financial planners” were all life insurance licensed. There is nothing worse, more scary, than a non-life insurance licensed financial planner. Proof a little knowledge is a dangerous thing. I assume you are not life licensed and if you are, its to get a sale that you trip over. If you are not and are giving advice that only a licensed agent should give, you should be subject to a legal reprimand as when someone is giving legal advice without being an attorney.
Also;
The only way you can sell mutual funds is to try make false negative claims about life insurance? Please tell me that’s not true and that you really have talent, knowledge, and integrity.
Life insurance is not an investment, it is………….. life insurance. You’re “commenting on baseball at football camp.” You can’t really be surprised at the response can you?
Do not do your prospects/clients a disservice by confusing the two. Stick to what your expertise is, investments…….. where you are guaranteed nothing and can lose everything. Good luck with that concept.
Neal Frankle says
Interesting, Jay, rather than question me…why not respond to the post? What do you take issue with?
And yes, I am fully insurance licensed. Thank You.
Ronnie says
This is absolute garbage. This person is obviously undereducated and a “buy a term policy and invest with me for your future” person. My child was born with a disability that would have made her uninsurable had I not had a children’s term rider on my policy through State farm. She now has her own policy with a CTR and is about to make me a grandfather, again thanks to State Farm. These are not UL’s, but whole life policies that are paid for in 15 years. No more premium!! At retirement these policies are approximately double the death benefit because of dividends paid into the policy. Few people have a million$401k to prevent loved ones from being saddled with leftover debt.
Neal Frankle says
Ronnie, I am very grateful that your daughter has survived and is making you a grandfather. That is wonderful – and another example of why this insurance is a waste. She has, thank G-d, survived and is thriving….
Carol Robinson says
I just passed the state test to become an insurance producer and was looking around for information I could use in marketing. I also was not a believer in insurance for children until I took the pre-licensure course and LEARNED about it. This article caught my interest because I as I was looking for support for selling insurance policies for children, I was also looking for objections to selling it, as I know this is probably what I will have to deal with most. I think everyone here expressed themselves very well and found both the supporting comments and the objecting comments enlightening. I am now “pro” policies for children. My children are all grown now but I wish I had purchased policies for them as children. I believe in the advantages of “insurability”. I was also deeply touched by the contributors to this column that had lost children. My best friends lost their daughter and though no amount of money would have eased their sorrow, her dad may not have have to return to work so quickly before he had time to deal with his grief if they had had a little cushion. Thanks everyone for your opinions.
T. Allen says
As a CFP myself, your blanketed opinion and advice illustrate your lack of understanding of individualized aspects to a clients planning objectives on a case by case basis. You sound like a Dave Ramsey or Suze Orman follower, which are two of the worst financial cult leaders to be introduced to our society. Please tell my physician client who lost his only two children in a car accident while commuting to a concert in college he made a poor decision when he decided to purchase whole life policies on them as very young children. The bottom line is that this type of article illustrates what little wisdom is left in the financial services industry. It has become nothing more than blanketed, misleading advice from “professionals”. For full disclosure, I don’t even sell life insurance. I am a true fee only advisor but value insurance as a wonderful risk managment/planning tool from a sound mutual company. Please don’t take this personally, but putting it in your terms, just my “opinion”.
Neal Frankle says
T-
Thanks for your response. Respectfully, I disagree and stand by the post. Had your physician client known that his children would tragically die, sure, it was a good decision. But that’s like saying anyone getting on a plane that is going to crash is stupid not to buy accidental death insurance. It strikes me as the same argument.
Statistically, children live to become adults in this country – thankfully. Are there disasters? Yes. But insurance is an economic tool, nothing more. It should not be used as anything else. As such, this insurance makes no sense.
JoeTaxpayer says
At the risk of appearing to waffle, I felt an obligation to look at what was out there. I found a policy called “Smart Start Children’s Coverage” which looks like a one-time (not annual) fee of $150 for $10K of coverage through age 25. At 25, there is then a one time option to buy up to $50K guaranteed whole life.
I think the Doctor anecdote is tragic, but having insurance on one’s adult children when one has a lucrative job really makes no sense.
The policy I cite may very well be appropriate for those for whom a funeral expense would be an unaffordable event. Given that 25%+ of the US have no savings at all to tap for any short term expense, that actually opens the door to the need for such a product, but only as a way to pay for the funeral. It’s not an investment, and even at $150 for the $10K, it’s statistically overpriced. Although the renewal option has merit for reasons others have stated.
By the way, Marco, the caps-lock makes you look like you’re screaming. It’s bad form and diminishes your position.
MARCO says
NEAL YOU ARE A COMPLETE IDIOT!!! THERE ARE A TON OF INVESTMENT OPTIONS IN UL POLICIES THAT ARE GREAT SPECIALLY WHEN YOU ARE VERY YOUNG. YA ITS UNLIKELY THAT UR KID WONT DIE BUT IT HAPPENS, AS A MATTER OF FACT IT HAPPENS EVERY DAY. WHAT ARE YOU LIVING UNDER A ROCK? AND YOU KEEP PUTTING INSURANCE SALES PEOPLE DOWN, NO INSURANCE IS A RIP OFF EXCEPT CAR INSURANCE (FOR THE PREMIUMS WE PAY) . AND WHY NOT PUT 50 BUCKS IN FOR THE KIDS UL POLICY WHEN HE IS BORN? THAT 50 BUCKS IS GONNA GO TO SOMETHING USELESS LIKE TOYS THAT THEY HAVE TONS OF ANYWAYS. EITHER WAY INDIRECTLY YOU KEEP PUTTING THIS ISSUE DOWN IN ALL YOUR POSTS. DO MORE HOMEWORK BEFORE YOU CONTINUE WITH YOUR BS!!!
katie says
I couldn’t disagree more. Yes your kids doesn’t provide income but how long will you be out of work if your kid passes away. How much income will you need to replace???? Another important factor to look at is what if your kid is uninsurable at 20 or 30 when they have kids? Plan for the future we will all pass away one day what’s a better gift for u or your grandkids??
Tina says
OK, obviously you have never talked with a grieving Parent who has lost a child. Children die all over this country everyday due to unforeseen accidents and sickness. If you are a Parent, can you even imagine the heartache that is associated with this type of loss. A complete mental breakdown is not unheard of, being unable to return to work after the standard 7-10 day bereavement period is up is also a common occurrence, Final Arrangements need to be paid for….
For a family that is living paycheck to paycheck & maybe not the best, disciplined wise, at saving money in other traditional methods- Life Insurance is definitely a better option to not having a plan in place at all. Are there better savings venues than Life Insurance, no doubt & no arguments there but different strokes for different folks.
As an Insurance Professional, it irritates me to no end when I read blanket statements/posts like these. Life Insurance is not a one size fits all product or topic of discussion. Everyone’s economic status, comfort levels and lifestyles are not the same.
I mean no disrespect to you and your opinions Sir but please, don’t just dismiss it as a “Bad Idea” for everyone else in the world just because maybe, no one in your circle of influence needs it.
Respectfully agreeing to disagree.
Neal Frankle says
Most of the people who have a big issue with this are insurance sales people. The emotional tragedy has nothing to do with the need for life insurance. The odds of having to go through something like this are thankfully very very low. Life insurance companies don’t push this because they are so concerned about grieving parents. This is sold just like guaranteed life insurance – it’s a rip off.
Charles says
The problem with all discussions of life insurance is that rates can be so massively disparate as to be rediculous. It’s easy to say that you should not buy life insurance for a child if it costs a lot of money, but is there some point where it’s so cheap it is a good idea, if nothing more to pay for the costs of a funeral, which can be considerable?
I have life insurance through a professional organization for myself and my wife. Adding $10,000 coverage for all of my dependents costs $4.20 a YEAR! The small likelihood of ever having to pay mean the rates are very low, at least from those not seeking to massively profit off of your policy. And, it’s just an add-on to a larger group term life policy, so it’s very inexpensive.
I learned about life insurance the hard way. I had term life insurance from Northwestern Mutual many years ago. After a few years, I found coverage through IEEE (New York Life). I got six times as much coverage for less than half the annual cost! The same product with about a 16 to 1 difference in price? So, when you talk about coverage for children, be sure you look for a reasonable price, since many insurance products are an absolute ripoff.
James Harkins says
Neal,
I respectfully disagree with you. I am an agent and come from a healthy family of long livers. With that said, my brother contracted cancer at the age of 21 and died from the effects of treatment by the age of 47. He was married AND uninsurable. My other brother started having seizures at the age of 14 and is now 43. His life insurance is rated and expensive. My list of examples outside the family is extensive.
Youth rates are inexpensive and whole life coverage can be paid up in either 10 or 20 years.Contractually paid up. Done. That fact coupled with an internal rate of return hovering at 5% in year 30 is not a bad investment (10 or 20 year paid up, using a 160 year old mutual company).
I agree that life insurance cash values should not be used for college funding or in lieu of a Roth IRA.
Thank you.
James Harkins
Heather Whittington says
I have a 2 1/2 year old with a life expectancy of 5-7 years. I don’t want him burned to ash and shoved in an earn, not be able to have a viewing/memorial that my warrior so greatly desearves. Am I, a hard working parent with so little income I can’t maintain expenses let alone save for a funeral, to deny my flesh and blood a beautiful, respectful send off? This makes me a bad parent (as someone abouve implied)? The reality is that THOUSANDS of children die each day, and rates on child life insurance, and poor policy quality come from deseptive applicants, or tragic accidents. Insurance companies for out full poicy promise without making any profit.
I care about my childs future! I know that his will not have the same length and promises of most so instead of a college fund, I have a burial fund.
To the individual saying this is unethical, why? Why can’t I plan my childs funeral and buy a policy for said purpase, if you can plan or buy policies for college funds? Is a healthy child more deserving of having a plan for their future, no matter what the future holds, than my child!?
I am a caring loving parent. I have a $5,000 policy that I pay $318 annually for!!! I’m not seking a profit, only hope that I can give my son a deserving farewell.
I have a great policy, helped selected by my aunt who is a globe life insurance agent.
I have no reservations, regrets, or second thoughts about this policy.
Paul Puckett says
Neal, I realize the purpose of a comments section on a blog is not for debate between your readers. But I am curious, so I hope you will allow a question for Gerald.
If so, Gerald, are you referring to Variable Universal Life Insurance, Whole Life Insurance, or something else in your comment?
Thanks, Paul
Gerald says
Neal,
I almost never comment, but here’s why I am here.
Have you ever heard the terms never say never? You present this argument like it’s possible for one person to be 100% correct and all other thinkers are in error.
For example, if one candidate is much stronger than the other – think Obama vs McCain – what are the results 100% to 0%? No, a landslide is 55/45.
What about the car decision to lease or own taxwise…another 55/45 proposition in general.
Point being is obvious, there are two sides to most stories.
I’m worried about your strong – “snakeoil” – abuse of your column’s power.
Why?
Investment options for permanent insurance are super robust now and in fact are NOT limited, they are abundant…
Investment gains after a few years pay for the insurance portion and in some cases there are bonus’s on top of that.
The strength of tax free loans on withdrawl is unique at retirement…the investment remains, you remove $ via capitalized loan creates tax free retirement money without reducing the golden egg…
So I get the feeling you might be advising people to load up on RRSP’s (very good friend of the govt because of all the tax you pay at the end) others are structuring their money in tax free exit vehicles and THEY are “snakeoil”….??
Lastly, a cheap cheap term to put a “placeholder” for a renewable and convertible to permanent when child turns adult and wants to build tax free retirement is actually pretty sound.
Lastly, lastly, I empathize with the people who have had misfortune and tend to agree with the people that think the shock to the family in such a misfortune is larger than people think…and to have options at that point in your life instead of being painted in the corner is a nicer side of the fence.
Not cranky Neal, just don’t see the need to fake apendicitis…. 🙂
Enjoy your posts generally…
Regards, Gerald
Neal@Wealth Pilgrim says
Gerald,
Thanks. You certainly make good comments. I tend to have strong opinions…you are right.
I can only share my experience and I have done so fairly. That being said, I also agree with much of what you said. There are cases where this would make sense. But addressing insurance for children as a whole, I am against it. If you have special circumstances (health or finance), go for it. But all things being equal, this is sold to the wrong people for the wrong reasons in my experience.
Gerald, I appreciate your thoughtful comment and of course appreciate your kind words.
Paul Puckett says
Neal,
One of your points about life insurance for children is still quite valid. There are those who recommend heavily overfunding a variable life policy to save for college, the child’s first downpayment on a home, or whatever. I think it’s safe to say we both agree, not a good recommendation.
Insurance has a purpose as the foundation of a financial plan, but the plethora of products make it sensible to get a second opinion from a CFP or CPA who is not involved in the commission. Insurance is not an alternative to traditional, or non-traditional, investing. Internal costs eat returns and, for those in higher brackets, all gain and income generated from variable annuities is treated as ordinary income for tax purposes. It’s also very difficult to write off losses.
Thanks for your thoughtful reply to my comment and the other comments on your blog and, best regards, Paul
Paul Puckett says
Neal, a very well written column and I agree with most of your points except for the main one.
First, a disclosure, although 99% of my work is as an investment advisor and author, I am a licensed insurance agent. Second, I haven’t sold a children’s policy, only because my average client is 72 and I carry the license to handle their needs for finding policies for their insurance trusts for estate planning.
Second, insurance, in my opinion, is not a valid alternative to traditional investments or savings. Period.
Third, parents should buy a participating whole life policy from a top-rated carrier for their kids. Why, as mentioned in a previous comment, to protect the child’s ability to buy insurance in the future. Children’s policies have a free, or low cost rider, to increase death benefit in future years without a physical. Children’s diseases like diabetes, leukemia, etc., are occurring much more regularly. These children will never, ever, be able to buy an individual policy. Cost of these policies is very low.
Fourth, a common misconception. There is almost no incentive for agents. Premiums are typically less than $300 per year. It would take a boatload of policies at a commission rate of 50-55% to make any money. That’s why most insurance agents don’t offer these unless asked and why they call them nuisance policies.
Fifth, commission rates on term insurance, which is the best choice for most people, are among the highest. Most carriers I’ve seen pay 90-110% of first years premium!
Finally, despite the above, I do agree with most of your points. I love your blog and follow it, although I just subscribed to the email feed today. Keep up the good work, but I’d ask you to reconsider insurance for children. I have family members who aren’t even ten yet who will never be able to buy individual insurance.
Neal@Wealth Pilgrim says
Paul, You –and many other folks who have left comments – make some compelling arguments.
I will re-think this issue. My premise is that you use life insurance to replace income. Your wise comment is that kids become adults and then they will have a need to replace their income. If they are uninsurable at that time, it would have been better had they purchased the coverage when they were young and healthy.
Your logic is clear and unassailable. I just don’t know what the odds of this happening are. As you say, it is a case by case situation.
While the commissions are low on this, I just don’t think most agents sell it for altruistic reasons. That of course doesn’t mean it’s a bad deal but I don’t think the insurance company or the agent is doing anybody any favors.
I suppose if you think the odds are high that your child will become unable to buy insurance down the line and that they w/die young, it makes sense. Again, I have no idea how often this happens.
But I really appreciate your well thought out comments. I will continue to ponder.
John says
Neal, both personally – and as an insurance agent – this is a passionate issue for me. The reason being, “odds” aside, when I was 23 and soon to be married, I became uninsurable due to a seizure in my sleep of unknown cause that led to an ER visit, lifetime of medication, etc. (Even US Financial turned me down). When I went to bed the night before I at least had $250k in term coverage – not enough, but I was a preferred risk so I knew I could get more down the line. At the time I was already working as an insurnace agent and was only able to finally get coverage via a favor from an underwriter thanks to a 50 year relationship our agency has with a particular company.
If odds were all that mattered when considering a low cost insurance policy, there wouldn’t be a good reason to buy flood or personal umbrella policies either. At any rate, a month after my son was born I purchased him an increasing death benefit cash value life insurance policy. It will be paid up in 15 years and last his entire life. I intend to give it to him as a wedding present on day.
Just like you, my own father – who is also an agent – told me I was being silly to buy a policy on my son.
My reply to him – “I wish you had done this for me.”
Neal Frankle says
I take your point. But I still respectfully disagree. You point is that people should buy life insurance on children not because they are going to die in childhood but because they may become uninsurable later. OK. If that is the case, agents should be selling people million dollar policies – at least. But the average purchase is very low thus making it almost useless. People are sold this junk on the emotional fear of losing a child which is not a good reason to buy it. Your argument is better but still doesn’t work in practice. I respect your ideas but disagree.
joe says
Bad advice. My child was hit by a car while riding his bike and died at 9 years of age and I was unable to pay his final expenses and had to declare bankruptcy. A simple $8/month policy would have averted telling my wife that we had to go with the cheapest possible funeral because I mistakenly believed the line that you’re insuring “income.” Not to mention the cost of the trauma care and other medical expenses. The bills. The unending phone calls from collectors who continually reminded my wife of her loss – every damn time the phone rang.
Everyone needs insurance. Everyone. You aren’t JUST insuring income. You’re insuring continuity of your own way of life. Continuity of your sanity.
That’s worth $8/month. No snake oil, just common sense. And no I don’t sell the stuff, I’m a truck driver.
Neal@Wealth Pilgrim says
I think I can speak for all the readers in expressing our sorrow at what happened to your son. I am also sorry that you received all those terrible calls. I can only imagine how terrible that was.
Jason says
I’ve never seen the point or liked the thought of life insurance for children. At all. I believe it is highly unethical and parent’s shouldn’t be allowed to take such policies out on their kids.
Heather Whittington says
Do you have a savings for your childs education? Better question, do you have children?
christine says
I dissagree with you Neal. Life insurance also covers the cost of the burial. What if you don’t have enough money for the cost of the burial? Would you rather make monthly payments for years to come (if they even allow that.)… or have the burial expenses paid for? (Casket, Outer container etc… even if your being creamated; it’s aproximatly $6,00.00 – $10,000.00.)
You are way off here….. I’ve sold life insurance in the past and you need to know your client as each situation is unique to that person/family.
Neal@Wealth Pilgrim says
Christine, I respect your point. I really do. Fortunately, this happens so infrequently that it’s not an issue for most of us. As you can see by a comment made above, this happened to Joe tragically. I also agree that you need to know your clients and I’m thankful that you do that. If a client needed this coverage, term should be the coverage of choice. IMO
JoeTaxpayer says
I thought of Evan’s post soon as I saw your article’s title. I’ve though about this, and with the one daughter, if she perished, I have the cash it would cost to see a good shrink every day for the rest of my life. The kind of policies sold on kids isn’t worth the money.
For long term investing, put the money aside and invest it for real. Jane 2.0 is 12 and had good babysitting income this summer. Her first Roth IRA was the result. She will have more in her account when she graduates college than most retirees have at retirement.
Joe
Neal@Wealth Pilgrim says
I’m with you Joe. Nice job w/Jane man. Can I send my kids to you for the summer?
Evan says
Neal,
I literally couldn’t disagree with you more. I recently bought Life insurance on my soon to be 4 month old.
http://www.myjourneytomillions.com/articles/why-i-will-be-purchasing-life-insurance-on-my-newborn-baby/
The main reason is – I am not going to work if my child dies. It is that plain and simple. Am I taking off 2 weeks? No more like 2 months? Maybe a year. If they had a sibling could you imagine leaving that surviving sibling so you could work? How could you possible focus?
Another reason would be Guaranteed insurability:
I have a buddy who was diagnosed with type 1 diabetes at 19…his term policy now at 30 (with a wife and kid) is a couple hundred bucks a month and he is likely to be underinsured. If his parents bought a similar policy to mine he could have increased insurance without having to be tested
I know we have differing views on Life insurance in general but even if you have the view that life insurance is only set up to replace an income then this type of policy is replacing YOUR income because you aren’t going to work for a long long time.
Neal@Wealth Pilgrim says
Evan, You do make a good point but I still think this is not a good use of money.
You certainly could be right that a child could develop a condition that later makes them uninsurable but I think this is statistically not a great risk. Most people are healthy thank goodness.
Also, nobody knows how we react to this kind of tragedy. If someone stays out of work for 2 months — ok…so that’s about $10k to $30k. Right? If you feel it’s important to buy that much insurance, I can’t fault you but I wouldn’t recommend it. I’ve read stories about people who go thru this kind of thing and they often report that the best thing to do is to go right back to work. In this case, having insurance would allow someone to stay away and isolate — the worst possible thing for the survivor and possibly the last thing the poor child would have wanted for the parent. All of this is conjecture of course.
Yes…we do differ on this issue but I always enjoy your wise input. Thanks.
Teri Moten says
Neal, I used to be a pharmaceutical rep and promoted a diabetes drug. One of the statistics about the prevalence of Type II diabetes is this: Of infants born in 2005 in the U.S., one in three (33%) will develop Type II diabetes during their lifetime because of genetics, diet, lack of exercise and obesity. The current prevalence of diabetes is 8.3% of the adult population. That is a staggering increase for those infants born in 2005. Many of them will be uninsurable because they will be insulin-dependent and have developed other co-morbidities. Just something to think about before you rule out the idea all together by saying future uninsurability is not a great risk.
Neal Frankle says
Teri,
Your comments are enlightening. Certainly worth considering…… Do you believe that these health problems can be marked by the parents? In other words, sick parents probably should consider this coverage but what about perfectly healthy parents?
Teri Moten says
Neal,
Diabetes definitely has a genetic predisposition. Therefore, I would certainly encourage those parents who themselves have diabetes or it runs in their families to strongly consider purchasing life insurance for the children.
One other little thought of piece of info for you to chew on…not saying that it warrants purchasing a policy for a child but just food for thought. People can also be uninsurable based on occupation and hobbies. For example, those who work on the oilfield industry (especially on offshore rigs are usually either uninsurable or their policies have numerous exclusions and are terribly expensive. This occupation comes to mind because I live in Texas and the oilfield is booming right now. Also, those who recreationally participate in skydiving, bungee jumping, piloting, etc are uninsurable because of the high risk activities. Again, not saying future occupation is the sole reason to get insurance on a 5 year old, but just something to think about.