Child Life Insurance: The Complete Guide For Protecting Your Children

Purchasing life insurance is not meant for yourself, but is intended to take care of your loved ones; particularly your kids when you die. While you may not be able to provide for your family financially forever, the good news is you can plan to protect your kids with life insurance for children.

Purchasing a life insurance policy is one of the best ways to help make sure your family and loved ones are financially taken care of when you pass away.

What Does a Life Insurance Policy Do For a Child?

A life insurance policy provides a tax-free lump sum of money that your family can use to survive in the difficult years following your death.

Buying a life insurance policy today will allow you to provide and protect your family in the uncertain years ahead.

Life insurance will help protect your children, in a number of ways:

Replace Income

The loss of a parent’s income will have a significant effect on your family’s financial well-being. A lump sum payment from your life insurance can help offset this loss of income. It will allow your family to maintain their current standard of living without worrying about your lost income.

Mortgage Protection

Your children and spouse will need a place to live after your death. Selling a home and moving to a new area only compounds the loss of losing a parent. Mortgage Protection Insurance assures that your loved ones can stay in your home following your death.

Pay Childcare Needs

Your life insurance benefit may also be used for additional or existing childcare needs. If your children are very young, you can decide how much you want to put aside for childcare.

Pay For Your Children’s College

Your life insurance benefit can also be used to pay for college. In addition, if you’re using a college savings plan, that money could grow, allowing your children to dream big when choosing their college.

Pay Medical Bills

If you were to pass away for a terminal illness that can accumulate a substantial amount of medical bills, life insurance could help your family pay off these expenses.

Pay Off Debt

The money your family will receive from your life insurance may be used to pay off things like credit card loans, car loans, small business loans, even the mortgage.

Pay Funeral Expenses

The cost of final expenses often amounts to many thousands of dollars. This cost can quickly escalate depending on where you live or what type of funeral service you want. Life insurance can pay for expenses associated with your funeral service and burial.

Who Should Get Life Insurance For Children?

Parents who provide income are not the only ones who should get life insurance. Both parents should be insured.

Parents who work full time in the home should also think about getting a life insurance policy. A stay-at-home parent might not earn an income, but the things they do would cost money to replace if they die, and life insurance would make covering these expenses easier.

A typical stay-at-home parent performs the task of a hired help, which has been estimated to be making an annual salary of $112,962 annually!

A stay-at-home parent does many things in the home that can’t be replaced with a paid help. A stay-at-home parent would cost tremendous amounts of money to replace, and life insurance could help your family adjust to the cost.

How Much Life Insurance Coverage Should You Get For Your Child?

To determine your life insurance needs, you should consider many different factors such as the size of your family, the stage of your career, the nature of your financial obligation, and your financial goals.

In general, your ideal life insurance policy amount can be calculated by adding all of your long-term financial obligations and then subtracting your assets.

Here are some guide questions to help you compute how much life insurance you need:

  1. What are the immediate financial expenses your family would face upon your death? (Car loan, small business loans, credit card debt and funeral expenses)
  2. How much salary is used to cover current expenses and future needs?
  3. If you were to die tomorrow, how long would your dependents need support?
  4. How much money would you want to leave your children? (Children’s education, inheritance to your children and gifts to charities)
  5. What other assets or insurance policies do you have?

Answering these questions will help determine how much money will be needed to support your children through college and your spouse through retirement.

What Type Of Life Insurance Plans Are There For Children?

Now that you know how much life insurance you need, we need to know what insurance policy we should get.

Term life insurance is the most basic form of life insurance. It offers protection coverage for a set of term – typically 10 to 30 years and once the term is over, the insurance will end.

Term life insurance pays a death benefit if you die during the policy term.

Term life insurance is the most affordable type of life insurance. It is appropriate when you need coverage for a specified period (such as until your children no longer need your financial support or until the mortgage is paid).

Different Types Of Term Life Insurance

There are several different types of term life insurance that you should know to make an informed purchase.

Renewable term life insurance

This policy can be renewed after the initial term has expired, without a medical exam or a new application. Read more about renewable term policies here.

Convertible Term Life Insurance

This can be converted from a term life policy to a permanent life policy. The conversion may be done without a medical exam if the conditions outlined in the initial policy are met.

Decreasing Term Life Insurance

The death benefit decreases over time until it reaches $0 at the end of the term of the policy. Read more about decreasing term insurance here.

Increasing Term Life Insurance

The death benefit increases over time, but the premium remains the same.

Different Types of Permanent Life Insurance

Permanent Life Insurance is also called whole life insurance. This insurance provides protection as long as you pay the premiums. A permanent life insurance policy has accumulating cash value that can become a valuable financial planning tool as you age.

There are three main types of permanent life insurance:

Whole Life Insurance

The death benefit comes with a savings component that grows as the insurance company pays dividends into the account.

Universal Life Insurance

This is a flexible policy that lets you adjust your premium pricing depending on your financial needs. Cash value within the policy may be used to pay your premiums in the future.

Variable Life Insurance

This policy allows you to allocate a portion of your premium into stock market investment funds.

Deciding Where To Get Life Insurance To Protect Your Child

By now you know how to protect your children with life insurance. Once you determine how much life insurance you need and what type you need, the final step is buying a policy. Here are the different ways how you can get life insurance at an affordable price:

Your Employer

Many companies offer life insurance as an employee benefit. Companies usually offer a certain amount of coverage free to salaried employees. Getting life insurance through work is best for people with the pre-existing medical condition since it has no medical exam.

Independent Insurance Broker

If you decide to get another policy aside from what’s offered at work, it is a good idea to get help from an independent insurance broker. A good broker can help you decide how much insurance you need. They can also help you shop for the best price and the right insurance company based on the coverage you need and your medical history. They can also guide you through the entire application process until your policy is approved.

Online Insurance Broker

Get life insurance with a few clicks. You can find many online insurance brokers on the internet. The most significant benefit of using these companies is convenience. You can start the process online, and these companies will help you make the application process easier. Online insurance brokers are independent, and their sites are easy to navigate.

Directly Through the Insurance Company

You can go directly to the insurance company (in some cases) if you don’t want to go through a broker to get life insurance. If you can figure out how much life insurance to need and you get different quotes from different insurance companies, you will be able to figure out which company offers the best price. Just go to that insurance company’s website and start the process.

Financial Planner

If you really want personalized guidance on the whole process of life insurance application, a fee-only financial planner may be an option for you. They can help you figure what kind of insurance is best for you based on your entire financial situation. They can give you a recommendation based on your financial goals. The only downside to getting a financial planner is it will cost you more than the other options since you will be paying for their advice aside from the cost of the life insurance policy.

Choosing & Changing Your Life Insurance Beneficiaries To Your Children

To protect your children with life insurance, you need to make sure you’re choosing the appropriate beneficiary. The primary beneficiary will receive the proceeds of your insurance policy. Your beneficiary can be a person, a corporation, trust or other legal entity.

Typically, the beneficiary is the spouse or the partner of the policyholder.  However, in the case of the elderly, it can be their children.

When naming your beneficiary, think about the person who will be responsible for your debts, mortgage, medical expenses, and estate taxes. You may select multiple beneficiaries and indicate what percentage of the net death benefit each should receive.

If you want your minor child as beneficiary, you need to designate an adult as the child’s guardian in your will.