If you are a parent, then you probably have taken out life insurance on yourself to protect your children.
But have you also taken out life insurance for your children? I know what you may be thinking. Life insurance for children? What do they have to insure? Children typically have no financial obligations, no dependents, no mortgages or car loans to pay off, no consumer debts to retire and no significant income to protect. Indeed, so much of what you read in the financial press insists that life insurance makes no sense for kids and those writers are correct when viewing life insurance's main function and in the near term.
And yet, here at Safely Invest, we actively recommend that parents consider placing whole life insurance policies on their children as well as themselves. Not so much for the death protection, for we all realize that the loss of a child is about the most emotionally challenging event anyone can face. Considering the possibility for a moment is painful. No, our primary reason for recommending life insurance for children is to secure their guaranteed future insurability.
What is guaranteed insurability? It is the right to buy reasonably priced insurance at certain times or events in the future, even if you become uninsurable. The increased coverage is available regardless of health factors, avocation, occupation or geographic circumstances. Even after your child grows up, they won't outgrow properly selected guaranteed insurability.
Seriously ill? Genetic disorder? Skydiver or scuba enthusiasts? Ordered to a combat zone? With guaranteed insurability, your grown child will be able to buy additional coverage as if they were in perfect health, working as the night guard at the library.
How does it work? You buy the amount of permanent coverage you need now and attach a special rider known as the Option to Purchase Additional Insurance, or OPAI. Then, at specified ages or life events such as marriage and the birth of children, your child may buy a specified amount of coverage at standard premium rates for their age and gender, no questions asked.
That is no small consideration. Even some of our relatively young clients - outwardly healthy people in their 20s and 30s - have suddenly found themselves reclassified as high risk. Nonstandard, rated up, substandard - these are the industry terms that mean they pay more for insurance. In many situations, additional insurance may not be available at any price. The industry calls that a "decline."
We may see the frequency of those situations increase as the information juggernaut continues to gain momentum. The vast ocean of data crashing through the Internet and other venues has not gone unnoticed by the insurance industry, which will increasingly attempt to further define the health conditions, hobbies and professions that hold the highest risks of mortality. As these new or increased risks are identified, we can expect to see them reflected in policy premiums.
Perhaps the greatest possibilities for change lie in the field of genetic research. Already, scientists have identified genes that are associated with a predisposition to certain illnesses. This development has profound implications in the life and health insurance field, where there is the potential for identifying those who are at greatest risk.
Granted, there is already public policy debate on whether life and health insurers are to be granted access to such information and how it might be considered. Don't assume the industries are automatically in favor of such access. After all, their business depends on the uncertainty of illness and the uncertainty of the timing and cause of death.
However, as more and more people elect to test themselves for genetic tendencies, life and health companies will increasingly be tempted to know as much about the applicants as the applicants know about themselves. Someday, will your children know something about themselves that impacts their ability to afford or even acquire life insurance? You can help them largely avoid that risk by including guaranteed insurability provisions on them now. It is not very costly.
Could this benefit only be important to your children and their dependents in a few years? Consider your own situation. Do you want to risk the possibility of someday having to take over financial responsibility for your children's families because they can't provide that security themselves? If they cannot secure adequate insurance protection, do you and the estate you have carefully built then become their insurance by default? Guaranteed insurability protects all parties.
Although guaranteed insurability is the primary reason we recommend life insurance for children, the dollars spent for some protection on them are not wasted. It's a chilling thought to imagine the death of a child. And no one wants to profit from such an event. But the significant emotional costs do not need to be compounded by financial difficulties, either. In today's mobile society, family members may be scattered across the country. A cash injection from a life insurance policy may allow parents to pay for arrangements that lessen the pain .such as transportation costs to bring distant relatives together or to donate funds in the child's name to a related cause. Life insurance proceeds can prevent an emotional trauma from becoming a financial one. Money can't take away the pain, but it can lighten the heavy load somewhat.
So, life insurance for children? Our experience says "yes" - for today and especially tomorrow. It plays a part in a long-range Family Financial Plan based on real world experience.
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