Burial life insurance for children is difficult to discuss. No parent should have to endure the pain and distress of dealing with the death of a child. It is best to make a plan to deal with this unlikely event, whether it's self-funded or through burial life insurance.
If your child dies, you should be prepared to pay or have an insurance policy that can pay for the following:
- Burial expenses
- Medical expenses and transportation costs
- Bereavement (This is an unknown cost. Bereavement can take weeks or months away from your work, so you are best to plan for a brief loss of income.)
If you find yourself with remaining insurance benefits after paying the necessary expenses and feel uncomfortable about keeping the funds, you can find closure and meaning by donating it to a charity, church or organization, or creating a scholarship. These are powerful ways to memorialize your child’s life.
Burial Life Insurance for Children
Burial life insurance for children is an individual life insurance policy for your child and can be a permanent or term policy. Term life insurance does not build up cash value and is much more affordable. Permanent life insurance can build up cash value and provide other benefits. Burial expenses are typically about $10,000, but you may want to plan for more given the reasons noted above.
A child rider is touted as the best way to purchase life insurance for kids, but it is not a one-size-fits-all solution. A child rider costs about $60 annually for $10,000 in coverage and will cover multiple children in the household without an increase in cost, but it is not the lowest cost solution for families with one child.
Term Life Insurance for Children
Term life insurance has been championed for being a low-cost solution for adults. The policy designed for children is not much different. Unlike the child rider, term life insurance for kids is a standalone policy. Interestingly, there has been little written about term life insurance for kids and the majority of companies do not offer term policies unless the insured is older than age 18.
There are essentially two types of term life insurance policies for kids, and the difference between them is how you pay. The first is your typical pay as you go. Just like term policies for adults, you payments are scheduled monthly, annually or somewhere in between.
The second type is called single premium term. This is a single payment option — you pay a lump sum upfront for the coverage. This option is quick and easy. For example, you can purchase term coverage for your child from age one to 18 for a lump-sum cost of $295. This single payment of $295 provides you with $10,000 in coverage till they are 22.
Permanent Life Insurance for Children
When considering permanent life insurance for children, you have several costly options. Permanent life insurance will cover the cost of burial regardless of what age your child passes. Therefore, the cost will be much higher and possibly ongoing. Permanent life insurance lasts for the life of the insured, and so does the payments for it, in most cases. The policy pays upon death of the insured child regardless of age as long as payments are made.
Benefits of Insurance With a Savings Option
Beyond covering burial expenses, there are additional benefits to permanent life insurance that some argue are worth the extra cost. Many permanent policies can be overloaded to provide a cash value to be used as a form of savings. Cash value in a life insurance policy does not need to be listed on a FAFSA form because it is not considered part of the formula for expected family contributions (EFC), so it does not factor into how much financial aid your child will be eligible for when they head off to college.
A secondary benefit is your child is already covered if they develop a chronic or terminal disease and cannot qualify for insurance as an adult. When a parent purchases a life insurance policy for children in the household, it can be argued they are keeping their future insurability in check, avoiding a possible denial of coverage. While this is very unlikely, if your family has significant medical history that is hereditary, it may be something to consider. When looking at future insurability, you have many options beyond a permanent life insurance policy. Most term insurance and term riders offer convertibility for the child to their own policy. This conversion can be up to five times the amount of the coverage.
Some permanent life policies give you guaranteed increases. The increase options are at significant life events such as when the child becomes an adult and include marriage and birth of a child.
Case Study Example
A close friend purchased life insurance for all of her children a few years after her husband passed away. She made decent money working for the federal government and found peace of mind in making sure this expense would be covered. Despite her kids now being over the age of 40, she does not want to let go of these permanent policies, so she continues to pay the premiums.
Many might argue these children need to handle their own responsibilities and purchase their own policies, which is valid, but some of the children are no longer insurable due to illnesses. Because the kids are over 40, this mom can continue to own and pay for the policy, transfer ownership, or keep ownership and have her insured children become the payors of the policy.
Should You Buy Burial Life Insurance for Children?
Whether you purchase insurance or choose to go without coverage, you need to have a plan. Some will advocate great value in being self insured and having money saved aside for things like a death of a child. Others feel more at ease with a solid solution, which a life insurance policy can provide.