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Term life for babies

Does it make sense?

As a father of two, the topic of term life insurance for babies is hard to even discuss.  At the beginning of life, they last think you want to consider is the end of life.  A large number of people actually request information on this type of insurance so let's at least provide them some guidance on term life for babies.

The first consideration is term or whole life.  As you've seen throughout our website, we believe in term life over whole for a reason...insuring 100% of a risk (in this case, your v=babies whole life) doesn't make sense in the world of insurance.  In fact, it's not insurance at all.  You're basically paying a $1 to get a dollar and if you calculate the investment loss and time value of that money...you're actually paying more.  The reason we even revisit this question is due to the fact that a baby's expected length of life insurance need is so large.  Does whole life make sense in this case? 

This is the issue.  You're paying much more for whole as compared to term.  Invariably, you're buying less actual coverage initially for the same premium amount.  Is this amount of term life coverage satisfactory?  This goes back to a critical question and unique one for babies...what exactly are you buying the coverage for?  If you are buying the coverage to protect until your baby is an adult and hopefully self-sufficient then an inexpensive 30 year term policy is probably a better option.    If you want to provide some type of nest egg that grows with time that your child can borrow against, then you're probably better off investing the money on their behalf (with a licensed professional advisor).  Some people believe (or have been sold) the use of whole life in this fashion but I personally find it hard to see who it benefit aside from the life insurance carrier and agent. 

Ultimately, the problem with this method is the amount of actual coverage you can afford.  Does it make sense to have life insurance that lasts the whole life of the baby if you're only able to afford 1/10th of the actual protection that you need.  Yes, 30 years from now, cash value might build up sufficiently to cover this but the point of life insurance is to offer full protection right away...day 1 of the policy.  You're gambling that you won't use the coverage in the first 5 or 10 years but that's just a stone's throw from gambling that won't need life insurance coverage at all.  A difference in scale...not in kind.   So what's a strategy?

We recommend looking at 30 year term life insurance.  This covers baby way into early adulthood.  At that point, your "baby" may decide to purchase his/her own term life insurance which is incredibly inexpensive at the age of 30.  He or she can make decisions based on a potential new family of their own and pick an amount of term and lenght of term that correctly reflects these new needs.  This two-prong strategy (30 years for baby and then separate policy for young adult) is the direction we would look to insure a baby.  The cost structure of this approach allows for sufficient coverage for your premium dollar.

Some people want to insure just final expenses for a baby.  This means they want to cover what would be needed financially in case a baby or child passes away.  Term is a  way to address this with common term amounts of $10K.   This should be adequate to account for funeral costs and some financial needs associated with such a trauma to the family.  Keep in mind that there are limits on the amount of term that a carrier will allow for a baby usually at $10K and the rate is higher at about $6 premium per $1000 of coverage.  Coverage on babies is sometimes only available as a rider on an adult's policy (not stand-alone). 

Death is never easy to plan for...especially for a baby but it doesn't make sense to look the other way and hope for the best with any type of insurance need.  


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