Life insurance policies for newborn babies may initially seem unnecessary, however, certain advantages may be attained from these policies. Although a child does not contribute financially to a household, purchasing a smaller life insurance policy for them could cover unforeseen expenses, such as those related to burial in a tragic event.
Life insurance pays an agreed-upon sum to a named beneficiary if the insured person dies while the policy is active. Maintained by a regular premium payment, life insurance is frequently purchased for adults to provide financial security for their families or businesses.
Child life insurance is available as both term life insurance and whole life insurance. Term life insurance pays only if the insured dies within an agreed-upon term like 10 or 20 years. Whole life insurance, though potentially more expensive, remains in force as long as premiums are paid and can build up a cash value over time, which can be drawn upon for needs such as college expenses.
Term life insurance is generally cheaper than whole life policies, however, some favor whole life insurance due to its functionality as a tax-advantaged savings vehicle. Part of each premium payment contributes to an interest-growing account - the policy's 'cash value'. This cash value can be borrowed against, or even cashed out at the cost of the death benefit.
While offering affordable protection, the low return rates on whole life insurance make other forms of investment more appealing to some. But insurance for infants, providing coverage for potential medical and funeral expenses, can help families cope with the emotional and financial stress should an unthinkable tragedy occur.
One cost-saving method could be to add a 'child rider' to your existing life insurance policy, which may be cheaper than investing in a standalone policy for your child. For instance, should a tragic event cause the death of your child at a young age, the policy could cover burial procedures which can range from $7,000 to $12,000. It could also help parents handle medical expenses not covered by health insurance.
Additionally, purchasing life insurance at an early age may secure a lower premium for your child when they become an adult. Many insurance policies offer child riders for a few extra dollars per month which can provide additional peace of mind.
Whole life insurance policies can also serve as a savings vehicle, allowing the buildup of cash value over time. When the child reaches adulthood, usually somewhere between ages 18 and 25, they can take ownership of the policy and choose to keep growing the cash value or cash out and forfeit the death benefit.
It is worth noting that while purchasing life insurance for a newborn could help build savings and cover potential funeral expenses, most newborns do not necessarily need life insurance. As a result, parents should first secure their own life insurance coverage before considering the purchase of a policy for their child.