Continued from “Insure your child- Good or bad idea? (Part 1)”
The earlier you get the policy, the lower the premium cost:
Life insurance premium charges more as your child gets older. If you setup the policy at their young age, it would be a lot more affordable than when they grow up. Furthermore, the premium of limited-pay permanent insurance has been raising a lot in the past few years. You’ll be paying less if you get your contract before the next increase. Note: “Limited-pay policy is where you only pay premium for a pre-set period of time, but the coverage would last the insured’s lifetime”
Growth in coverage and cash value
One of the options parents could consider for their child is whole life par insurance. The key characteristics are the policy has cash value that would grow overtime and it has the potential to pay out dividend. From the dividends, you may choose to use these dividends to purchase more insurance for your child. This strategy is called “paid-up addition”. If you are concerned that coverage would be eaten up by inflation, the paid up addition could be a great tool to grow your child’s coverage overtime.
Permanent policies can also provide the child’s future added financial flexibility – the cash value can be used towards a down payment on a new home or as collateral for a loan for other purpose. However, it takes time for the cash value to grow, do not expect there will be significant cash value in the initial years.
What are the cons of child insurance?
I would say in the economic perspective, it’s really the opportunity cost. If you do not get life insurance for your child, what other ways will you use those money?
- Savings into RRSP? RESP? TFSA?
- Pay down mortgage? Credit cards? Personal loans?Other debts?
- Renovate your house? Go for vocations?Entertainments?
- Others purpose?
In conclusion, there’s really no single right or wrong answer in whether you should be getting life insurance for your child. It really depends on your personal priorities. However, one rule of thumb is before you get child life insurance, you should always insure yourself first. After all, we are the one that the child is depended on.
To learn more about child insurance, feel free to CONTACT ME.
* Image courtesy of Phaitoon / FreeDigitalPhotos.net