Why I Bought Life Insurance On My Kids

by Ron Haynes

One of the biggest myths surrounding the purchase of life insurance is that you’re only insuring income. Nothing could be farther from the truth. Don’t believe me? Skip asking an investment advisor and just ask anyone who’s lost a loved one and had to go back to work the day after the funeral as if nothing happened.

Several years ago a friend of mine lost his young son in a tragic accident. His medical insurance had a very high $4,500 deductible with a family maximum out of pocket cost of $15,000. Those numbers were quickly surpassed prior to his son passing away at the hospital. The Life Flight helicopter alone was over $9,000 but his medical insurance only paid $250 (a common standard). His son’s funeral was bare bones since he had no cash to handle the medical expenses AND the funeral costs … and he had failed to purchase any life insurance at all on his son. His investment advisor had recommended against it saying that life insurance existed ONLY to insure the ability to produce income and that my friend shouldn’t waste money on it for his children.

Life insurance is about more than insuring income … much more

Life insurance isn’t just about families insuring the income of the main breadwinner. It’s also about three other often overlooked costs:

  1. The final medical expenses
  2. The funeral costs
  3. The cost of your mental stability

Final medical expenses

If you lost someone close to you, especially a child, would you be able to foot the entire bill not paid by your medical insurance? Or would you have to declare bankruptcy like my friend did? When he and his wife arrived at the hospital, he had to fill out and sign all sorts of forms. To this day he doesn’t remember much about what he signed but he agreed to be financially responsible for the bills. You won’t get around this one.

Funeral costs

The average cost of a bare bones funeral today can range from $7,000 to $11,000. Do you have that amount sitting around, ready to use at a moment’s notice in a liquid savings account? My friend didn’t and had to plead with the funeral home to do the cheapest funeral possible. He is still bitter about it today.

Your mental health

This one is the big unknown. A small life insurance policy may be able to let you get some professional counseling or give you the breathing room financially to take some time off from work to grieve. My friend was forced to go back to work just 3 days later, leaving his wife to grieve alone at home while she answered the phone calls from the bill collectors. She almost couldn’t handle it and considered suicide just to get some relief from her sorrow. The hollow look in both their eyes was haunting.

I can assure you, if I lost one of my children, I would need some time off and some serious counseling. And don’t feed me that line about getting back to work right away being the best thing for me. There is no universal “best thing” for anyone after they’ve lost a loved one … particularly a child.

Life insurance on kids isn’t immoral

I personally find the morality argument extremely offensive. No one wants to “get rich” from a child’s death. That’s just sick. But insuring a child’s life isn’t any more immoral than insuring their health, their car, or your home. You’re insuring against the risk of loss and life insurance on a child helps prevent parents from experiencing even more loss, financial and otherwise.

It isn’t expensive

Fifteen year level term insurance with a $50,000 death benefit on a healthy 10 year old boy only runs about $7.50 per month. On a girl it’s only about $7.20 per month. But still, you’ll find stupid (yes, I said it) financial gurus who claim that life insurance on a child is a poor investment. Sure, it’s a poor investment if you’re looking for a return. I’m not looking for a return on my “investment,” I’m looking to insure against the risk of losing my child.

Get the exact insurance you need at USAA.com

One size DOES NOT fit all in personal finance and it sure doesn’t fit all when it comes to life insurance … including life insurance on your children.

About the author

Ron Haynes has written 1000 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.


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{ 8 comments }

kh

Great post. I don’t have kids, but if I did I’d have insurance on them for exactly the reasons you talk about. I have watched 2 friends of mine deal with the financial and emotional fallout of losing children. It’s awful and heartbreaking to begin with to lose a child, but to then possibly lose your home and your assets because of the death is beyond comprehension. Not everything is about ROI.

Ron

Agreed! Nothing about any insurance should be about ROI. It’s about mitigating risk and the risks are not ONLY related to an income stream.

Peggy

Interesting article, Ron. Many years ago after I was born, my mother took out a life insurance policy on me. After she passed away and we discovered the paid up policy in a drawer. I never understood the purpose of the policy until I read your article. She obviously knew much more about finances at a much younger age than I did/do.

My dad and I tried unsuccessfully to locate the company (Equitable Life Insurance of Washington, DC) to see if it was worth keeping the original paperwork on the policy. The policy was for $500. Do you know if it is worth anything after all these years? I’m overseas now, so only have access to internet searches. Thanks for any light you can shed on this.

Ron

I’m guessing it’s worth something. I believe that Equitable merged with AXA so try getting in touch with someone from AXA-Equitable at http://www.axa-equitable.com/ or at (800) 777-6510. You could also contact them by regular mail at:

AXA Equitable
PO Box 1047
Charlotte, NC 28201- 1047

Brandy

I so agree. Insurance can give you breathing room after a devasting event.

Tyler @ Dividend Money

What a kick in the face!
Even though I have two young children, I never really considered the additional costs beyond funeral expenses.
After reading this post, I completely understand why reasonable people would/should buy life insurance on their children.
Thank you for the wake-up call.

Ron

Thanks. Hopefully you’ll never need that insurance but it is simply crazy to NOT buy it.

Ron K

Great post. I have sold life insurance for twenty years after spending twenty years in the retail furniture business. It is the adults who suffer financially after a child is lost. If a person runs a small business or is a commission salesperson, their income is liking to go down for a very long time. This could easily run into the tens of thousands of dollars—simply lost. And children who get sick with a dread disease don’t usually die quickly. Parents will take off work and seek medical treatment in another city if they think it will help. Go to any children’s hospital and listen to the stories. A $50,000 to $100,000 term policy is usually inexpensive. Better that than a $10,000 or $25,000 whole life policy, which is much more expensive even at a young age. Like you said, you are simply insuring against a risk of loss—nothing more.

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