As part of our family’s financial plan, life insurance for newborn babies is on the list. Many might question: Is it necessary?
Understand life insurance for newborn babies
A whole life insurance policy
For newborn babies, you can buy a life insurance policy for children. It is a whole life coverage that includes a death benefit and a cash value. Specifically, you pay for premiums, and the insurers will cover any burial expenses should your children die with suicide exclusion. If the child commits suicide within two years of reinstatement, the death benefit might not be covered. The paid premiums will be returned after minus any loan.
Regarding the cash value, like any whole life insurance, part of the premium will become a sum that belongs to the child. This sum will grow through years with predetermined interests by the company and is entirely tax-free. It can be borrowed from the interests or withdrawn without tax if the withdrawal doesn’t exceed the premiums.
Children over 14 days of birth can buy this policy. They are eligible for the policies until they get 18. In some states, the age limit can be twenty-one or even twenty-four. You can buy life insurance for your babies by applying through an online form. However, some companies might require you to come to their agent in person or contact via phone.
Companies don’t offer a term life policy for children. However, a parent with term life coverage can add a rider on his/her contract to cover for the child until the child reaches maturity age. As the child becomes a grown-up, the term will end. Parents can convert it into a permanent policy with an extra cost.
The policyholder, the insured and the beneficiary
In a typical life insurance contract for children, there are three parties involved:
1. The insured – the person whose life is covered by the policy. In this case, it’s the child.
2. The policyholder – the person that pays for the policy, which can be either a parent, an adoptive parent, a grandparent, or a legal guardian.
3. The beneficiary – the one that will receive the death benefit if the insured dies. In this case, that’s the parents.
To apply for the insurance, you need to register a social security number for your babies. One piece of advice is to apply for a social security number along with the birth certificate. This would save your family a lot of time, and your baby can benefit from it as soon as possible.
Characteristics of a typical child insurance policy might include:
· A coverage between $10,000 and $50,000: Since most children don’t make lots of income, the coverage is often limited to $50,000. As the child becomes an adult, they can buy more coverage.
· No increase in the premiums
· No expiration date: Like any whole life insurance, the coverage is lifelong, and you don’t need to worry about its expiration date.
· A cash value that you can use and borrow from
Definite advantages of life insurance for newborn babies
No pre-existing condition
As most children are born healthy, there will be no medical underwriting required for the child. This is extremely helpful if your family has a medical condition. The coverage protects the child should he or she develop any diseases or illnesses later.
With life insurance for newborn babies, the babies are insured for their whole life. The child can buy more coverage without any underwriting. Even if the child’s health gets worse later in life, he/she can still purchase more coverage regardless of their health conditions.
Should the worst case happen, parents can be relieved from the funeral expenses. The only exception is when the child commits suicide during the first two years. If the insurance companies fail to pay within the first 31st days of the insured’s death, they will have to pay an extra interest rate for the beneficiary.
Debates around life insurance for newborn babies
Low cash value
Most agents and insurance companies will promote cash value in life insurance as an investment or a saving. However, lots of people argue about the actual worth of the cash value. Although it is tax-deferred, the money takes years to accumulate. Borrowing from it might also result in interests for policyholders. Thus, cash value might not be as not cost-effective as what most salesmen always tell you.
A waste of money
Children’s life insurance can become redundant if the children grow up healthily, and in most cases, they do. Many say that the money spent on children insurance can otherwise be invested in alternative ways, which might be more profitable.
Frequently Asked Questions
Can you change your premium frequency?
All companies will allow you to select your premium payment date. You can pay it once per month, per quarter, or per year. If you change your financial plan and want to adjust your premium payment frequency, you can always contact your insurer and ask them to help you.
Are you allowed to cancel the contract and get reimbursed within 30 days of purchase?
Some people might have second thoughts or feel unsatisfied with their policy. In this case, they can cancel their policy by contacting their insurers. The insurers will refund your money if you do it within 30 days from the days you purchase it.
Can people who have a relationship with a child buy life insurance for him/her?
Besides parents, grandparents, adoptive parents, or legal guardians can purchase a coverage for the child without his or her consent. To buy life insurance for their child, they just need his or her social security number.
Can you surrender the policy for the cash value?
If you want to stop your policy, you can surrender it and receive money from your cash value. The cash value will be calculated and returned to you, plus any premium paid beyond the cancel date.