I'm a big advocate for life insurance -- all ages. When my two children were ages 9 and 10, I purchased universal life insurance policies for $100,000 on each of them. I didn't buy the policy for the death benefit; I bought it as a way to accumulate tax-free income growth while guaranteeing them a low premium for the rest of their lives.
My children are now 29 and 28, and they still have their $100,000 policies while the premiums are only $26 and $28 per month. Their cash value is increasing, and their premiums are affordable.
There are two basic types of life insurance: term and universal. Think of term life insurance as renting your policy for a period of years, while universal life covers you permanently and accumulates cash value. As long as you pay your premiums, you will have the coverage with universal life.
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Parents often have questions when thinking about buying life insurance for their kids. Here are my thoughts on two of them.
If you buy life lnsurance for children, do you need the death benefit?
Pros of a death benefit: The primary benefit of life insurance is the death benefit. For most people, life insurance is purchased to cover final expenses and replace lost income. While most children don't have an income to replace, the death benefit can be used to pay for memorial and funeral expenses and any uninsured medical bills for the child.
Potential alternatives: If you want to insure funeral and medical expenses, you may be able to add the child to your own life insurance policy for a small additional premium. If you don't have life insurance for yourself, or the policy doesn't allow you to add your child as an insured, another option is to buy a low-cost term life insurance policy for your child. These can come with a death benefit of about $10,000.
When buying life insurance for children, do you need to consider future insurability?
You don't know if your child will develop a disability or chronic illness later in life, making it hard if not impossible to get life insurance when it's needed the most. Buying permanent life insurance for your child can help ensure the availability of coverage later in life.
Also, the premium cost likely will be lower for a child compared with similar insurance purchased as an adult. This is particularly true for children who are at high risk for developing an illness or disease.
Often, a family history of health problems may affect your child's future insurability. If you have a family history of illnesses such as heart disease or diabetes, insurance may be expensive or unavailable later in life for your kids. Buy the policy now when the child is younger to cut costs significantly.
Vicki Gunvalson is owner of Coto Insurance & Financial Services in Orange County, and star of Bravo’s “The Real Housewives of Orange County.”
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