Permanent life insurance can be a good investment providing you pay your premiums on time and get a low-commission policy. Along with higher-earning investments, life insurance as part of your overall investment portfolio can help contribute to your future financial planning goals.
A policy in your child's name has potential benefits as well. That's why it makes sense to explore the practical reasons on how buying your child a permanent life insurance policy can pay off now and later in his or her lifetime.
The premiums for life insurance are lower if you buy now rather than if your child waited until adulthood to buy a policy. Lower face amount policies for children are available at a lower monthly cost. In many cases, you can lock in the premium rate for however long your child continues the policy as an adult.
Once your child grows into adulthood and doesn't already have a life insurance policy in place, several factors can increase the premium and perhaps make a policy unaffordable. Even if he or she can afford life insurance once grown, the cost of the monthly or annual premiums can directly impact his or her household budget and financial planning strategies. Factors such as age at the time of application, pre-existing medical conditions, and lifestyle habits like smoking can increase the premium.
Cash Value Accumulation
Not only is it easier to get a policy at a younger age, the policy also has a longer time to build cash value—an investment in which the premiums you pay accumulate tax-free. With a permanent life insurance policy, your child can use the money later to pay toward college tuition or put a down payment on his or her first home.
Although permanent life insurance policies grow slowly and have a lower rate of return than other investment vehicles that earn more, the money a policy earns provides a predictable annual rate of return. Therefore, if you are looking for a safe investment to start building your child's financial future, permanent life insurance is an option to consider.
If you buy a life insurance policy for your child now, you help guarantee that he or she will have life insurance coverage in the future as an adult. Your child will have life insurance regardless of medical problems that may occur during his or her lifetime. He or she can also buy more coverage as an adult even if a health issue develops.
As your child grows into adulthood, underwriting requirements become more stringent. That means many common risk factors that adults face as they get older can prevent your child from getting a life insurance policy as an adult. Consequently, without guaranteed coverage, his or her financial security may be impacted if health problems strike.