It sounds like a gimmick right? Why would you need to buy life insurance for a baby? The baby doesn’t have any kids or husband or wife. The baby doesn’t own a business. It can sound ludicrous.
The truth is there actually are a couple good reasons to buy life insurance for your baby, the biggest is that it can set them up for financial success later in life. Here is a look at why you probably do want to consider purchasing life insurance for your kid, or future baby.
It Will Make Them Money
A whole life insurance policy pays dividends. You can use these dividends as a cash payment to you (completely tax free), or you can buy more life insurance with them, or you can use them to pay your premium. If you have the dividends purchase additional paid up life insurance, it has a kind of compounding effect on the policy. Your premiums don’t go up, but the size of your policy does. The bigger the policy is, the more it pays in dividends.
If you start a policy for a baby and have the dividends buy more life insurance, by the time the baby has grown to adulthood the policy will have grown a lot, and with it the dividend payments. When your child takes possession of the policy they can potentially get payments from it for the rest of their lives.
Source of Cash Savings
Whole life insurance policies, like those issued to babies (you can’t get a term policy for a young child) have a cash value component. The cash value of the policy goes up as the policy gets older. Starting a policy for a child at such a young age means that the policy will have a long time to age and accrue cash value.
A policy can be surrendered for the cash value, or the owner can take loans or withdrawals against the cash. Starting a whole life insurance policy for a baby allows decades for the cash to grow and compound. By the time the baby reaches adulthood, they will have a wonderful source of financial security in their life insurance policy.
The money from a life insurance policy can be withdrawn for any reason. They are often used to fund college, buy books, help pay for a wedding, or as a down payment on a home. The extra cash can also get someone through the tough times, like in between jobs or after graduation but before you really start earning a good salary.
Sometimes the money is needed for emergencies like emergency home repairs or medical bills. Even if they money isn’t needed, it provides a great financial cushion and is an asset on the balance sheet for things that require credit such as home mortgages or even a business loan.
Even a small whole life policy will grow to be quite substantial by the time your child reaches adulthood.
Provides Their Family Protection
Life insurance is an expense that not many people want to pay. Unfortunately, the need for life insurance makes it more than a luxury item, it is a necessity. Buying a small whole life policy for a baby is pretty inexpensive (the younger the insured person is the less expensive the annual premium is, all else being equal). If you set the dividend option to purchase more life insurance, the policy will grow and grow for years. By the time the child reaches adulthood and has a family, the policy may be two or three times as large in death benefit than when it was first purchased.
This will help take care of a vital financial product that your child will need. It’s one less thing for them to worry about and pay for, and one less drain on their resources.
One of the best benefits of getting a policy for your baby is that no matter what health conditions that they may have later, their life insurance policy is guaranteed (assuming that all of the premium payments were made). This guarantee of insurability ensures coverage for your child no matter what. Don’t underestimate the importance of this or minimize the importance of guaranteeing coverage.
Getting life insurance for your baby may feel like an un-needed expense, but it is far from it. A life insurance policy provides a source of savings, a source of income, and guarantees protection for your little boy or girl later in life.