Insure your child- Good or bad idea? (Part 1)
Should you get insurance for your child?
There are always great debates on whether you should get life insurance for your child when they are still young. I recently read a column from another advisor, where he is completely against this idea. As a result, this column received many critics such that it is overly biased since the pros and cons are not well presented. His logic is that if the child is not generating income now, there is no income replacement needs. I do agree with this point, in most of the time, getting life insurance for a child does not bring immediate benefits. However, the idea is to prepare for their future. Unless you foresee that your child would always be independent, he/she would grow up and start a family. Then they will definitely have their insurance needs. At that time, it’s not hard to imagine, your child would have lots of expense to be taken care of. For example, mortgage, car payments, utilities, debt payments, phone and cables, groceries, and many others. Wouldn’t it be nice if they have a life insurance policy that is already been paid up?
Before we start, I would like to make a clear statement that in the financial practice, “ONE SIZE DOESN’T FIT ALL”. Everyone’s situation is different, the income is different, the family condition is different, the goals and priorities could be different as well.
Let’s go back to the original discussion, what are the pros and cons in getting child life insurance?
What are the pros of insuring your child?
Reduce the uninsurable risk:
- Insurance is unlike other products, where you can buy it anytime you want. In order to get approved, it has to gone through detailed underwriting process. Getting the policy setup early will protect the child’s ability to obtain coverage against future health problems, such as asthma or cancer; it will also protect the child against risky occupations such as becoming a firefighter or pilot.
- Many parents assume that because their child is healthy now, then they will be healthy in the future. I have personally encountered a young client around age 25, where the life insurance policy was rated 50% due to medical problem. If the parents got a policy when this client was small, this would not be a problem, since the policy could be paid up by now.
- Family history also plays a role in the underwriting process. Your future health condition might affect your child’s ability to purchase insurance in the future. This is one of the questions from the life insurance application of Canada Life, which is a very common one across the insurance industry: “Prior to age 65, did any of your parents, brothers or sisters: a) have cardiovascular disease, stroke, diabetes, Huntington’s chorea, polycystic kidney disease, or any other hereditary disorder? b) have cancer/ tumour? c) die from any of the conditions mentioned in 13.10 a) or b)
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