As an insurance agent I have to ask, “What if…?” I have to make my clients consider the worst possible circumstances.
I have to ask, “What if the family wage earner is killed in an accident?” That is bad enough, however, I have to follow up with, “What if one of the children die?” I find that the hardest question that I have to ask.
Financially, the death of a wage earner is devastating to a family that has not prepared. In addition to grieving the loss of a spouse and parent, the family is forced to change their entire lifestyle.
The death of a child does not have the same financial impact but it can defeat even the strongest parent.
I can do nothing to help with the loss of a loved-one on an emotional level. However, I am able to suggest a strategy to remove the financial stress that the death of a wage-earner or child can add to a family.
Recently, I read an article trying to justify buying permanent life insurance for a child. I found their arguments weak.
In this post I want to pose 3 questions that you must ask before you buy life insurance and give you something to think about if you have children.
HOW MUCH IS IT GOING TO COST?
The price for Term Life insurance has consistently gone down during my 25 year career. However, the face amount that is needed to replace your entire income has gone up considerably.
When I started in the industry, it was easy to find an investment that was paying a 14% rate of return. Today, you are lucky to find something that is paying 4%.
The result is that while term life premiums have gone down over the years, the average policy is nowhere near what it was when I started. Back then, appoximately 1/3 of all Life insurance benefits was for $100,000. Today that is not enough for most people.
The last term insurance plan that I worked on for a young couple with 2 children was for $750,000 just for the wage earning parent.
DOES AN ADULT REALLY NEED LIFE INSURANCE?
My parents were members of the Silent Generation. My father was too young to fight in World War II and too old to be drafted for the Korean Conflict. They got married in the 1950s.
Since they got married in the 1950s, gender roles were different then they are today. They were raised to believe that the role of the husband was to earn an income and the role of the wife was to maintain the house and care for the children.
Societal rules have evolved in the last 60 years. Gender expectations have changed. Either, or both spouses, can earn an income from outside of the household. The buying power of dual income households allow them to have nicer things.
Unfortunately, if either the husband or wife dies prematurely, their income is lost. While a widow or widower should be able to maintain their standard of living if a spouse is removed from the picture, if there are dependent children it is normally necessary to replace a portion of their income. Term Life insurance can do that when there is not enough money saved back in their “Rainy Day” fund.
In addition to more wives and mothers earning an income outside of the home, the number of single parents has drastically increased in the last 60 years. They have, if possible, a greater need for Term life insurance than someone who has a spouse. If a single parent is killed in an accident or by illness, the odds are that their child will be raised by their parents.
Last December I read the following statistics. They bothered me.
- 68% of single parents have no Life insurance
- 2,500,000 children in America are being raised by grandparents
- It costs about $250,000 to support a child to age 18
The conclusion I came to when I read those statistics is that many Baby Boomers have had to delay retirement because their child has predeceased them.
I do not know of any grandparent who would not want to take care of their grandchild but it is so much easier for them if they get some cash along with the child.
What bothers me is that the solution to the problem is easy and inexpensive. Regardless of whether the single parent or grandparent pays the premium, it is wise for a single parent to have at least $250,000 in term life insurance on him/her self for each child that could end up with a grandparent if they do not come home.
IS THERE AN ALTERNATIVE TO PERMANENT INSURANCE FOR A CHILD?
I do not know any sane person that wants to profit on the death of their child. Unless there are extenuating circumstances, I cannot justify buying a permanent life insurance policy on a juvenile.
However, if we allow ourselves to face facts, children die every day. Although people should not get rich on the death of a child, they also should not be forced to swallow the bitter meal that is “Final Expenses.” Their life is already stressful enough with having lost a child. They do not need additional financial stress at this time in their life.
A Child Rider is often the answer. Many Life insurance companies will allow you to add a minimal amount of coverage for all of your children for a nominal additional premium.
Although the Child Rider is a nice option for families with only 1 child, it is ideal for families with 2 or more children. As long as you inform your life insurance company when another child is born or adopted, the premium will never increase.
The bottom line is that you will be able to use your life insurance money to buy enough Term insurance on you to replace your income.