Life Insurance for Children

Most of you are familiar with my personal story but for those of you who are not, please indulge me. This ONEIdea is about insuring minors – yes, “kiddie life insurance”. The press is full of articles about why life insurance for children (a minor child) is a terrible idea, but there are other opinions on this topic such as those expressed in the Forbes article titled Pros and Cons of Life Insurance for Children by Cameron Huddleston and Amy Danise which presents a very balanced and thoughtful commentary.

A Decision By Young Parents

As young parents, my wife and I insured both of our children for $50,000 of Whole Life Insurance shortly after our daughter, the youngest, was born. Our son was about to turn 2. The life insurance was not intended to provide savings with equity type returns, rather it was to hopefully provide a safe and secure investment. The premiums were around $30-$40 per month for each child, which was an affordable investment for us at the time. We also started funding a 529 plan for each child with extra money and hopefully better returns.

A Child’s Unexpected Illness

When our daughter turned 1 she was diagnosed with a benign brain cyst and required a shunt, which is a tube that runs from her brain to her abdominal cavity. Its purpose is to drain the cerebral spinal fluid that is constantly produced by a functioning brain and that is normally naturally flushed. In her case, the natural drainage did not work and left unchecked, the build-up of cerebral spinal fluid caused significant hydrocephalous. At the time, our daughter was not walking, and we did not know if she ever would. The size of the cyst (think of it as a water balloon) was the size of an orange. Her brain (gray) matter was largely non-existent as it had been completely displaced by the cyst. After several surgical procedures and weeks of treatment at Washington, DC’s National Children’s Hospital, our daughter (now 22 months old) finally walked and started doing many of the normal things one would expect of a child that age – a small miracle. Unfortunately, because of scar tissue in her brain from the surgeries or the shunt (it is hard to know), at age 4 she started having seizures and was diagnosed with epilepsy. Our daughter is now 27 years old and continues to suffer from tonic clonic (grand mal) episodes.

My Child’s Life Insurance Today

Now, let’s get back to the life insurance. My wife and I have paid just over $10,000 in premiums at $32 per month for 27 years and the cash value is approximately $15,000, which equals a paltry 2.52% tax free return. However, we really do not care too much about that – it was always “safe money”. The real gain is that, due to paid up additions on my daughter’s policy, the death benefit is now almost $150,000 and will continue to grow as premiums are paid and dividends are earned. While this is not a huge amount of life insurance, I will take an educated guess that it is more coverage than most 27-year-old adults have and more importantly – it is permanent insurance. The insurance is fundamentally “paid up” as the dividends are larger than the premium due each year and the policy should sustain itself or continue to grow (with additional premiums) for the rest of her life. Why is that important?

Life Insurance For Those Living With Epilepsy

The Epilepsy Foundation’s website provides information on what to expect from life insurance underwriting:

• Complex and Tonic-Clonic Seizures – During the first year since the last seizure, you may be postponed or in some cases be offered standard rates plus an additional 100% markup. In years 2-5 after the last episode, standard rates plus an additional 50% markup will apply. After 5 years, standard rates may be available.

Because our daughter continues to have at least one seizure per year, she will likely be a permanent postpone for additional life insurance coverage unless her seizures stop at some point in the future, and at the very best, she will be highly rated. But the reality is that she may never be able to get life insurance, never mind afford it. Now, for some, that may not be a big deal – she is single, does not have children, has little debt and is fortunate enough to have parents that can help her out. But what about when she wants to get married and have children, and maybe buy a home? There is NO “cheap term insurance” that will solve her problem – she cannot buy it – AT ANY PRICE.

Life Insurance For Children – A Good Decision?

Did my wife and I make a good financial decision? In retrospect, we might have felt that a 2.5% tax free return on an investment of 27 years was downright boring – but it was the best financial decision that we ever made on behalf of our daughter. We do not think of her cashing the policy in for the cash value; we think of the insurance benefit she will be able to leave our (future) grandchildren if something were to happen to her when they needed her the most.

For those of you who are advising young families, or maybe even grandparents who want to help their children and grandchildren, purchasing life insurance for children is a solid financial decision. In today’s crazy, pandemic reality, it has never been more important. You never know when a child will become ill or develop a condition that could impact their life forever.

Life Insurance For Children – Guidelines & Suggestions

With all that said, if you are encouraged to recommend this idea to the right client or prospect – not all insurance companies are child friendly. So, you must do your homework. There are financial underwriting guidelines for insuring minor children that you should be aware of, in addition to medical underwriting guidelines and procedures. Nevertheless, most insurance companies do not require the typical underwriting scrutiny for minors, such as exams and lab work and many will issue policies with very limited underwriting requirements.

Call the AgencyONE underwriting team for clear guidelines on underwriting minors both financially and medically. There are plenty of highly rated and brand recognized insurance companies that offer a variety of products that are very competitive for minors: Mass Mutual, Mutual of Omaha and Securian Financial to name just a few.

And as a final thought, I would like to highlight Securian Financial as a company that issues Preferred underwriting on minors, which is unique in the business. Combined with their Balanced Growth Accumulator Index Universal Life product with a proprietary and low volatility index account, this Securian product is an exceptional choice to recommend for these situations.

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