Read this before getting coverage for your kids.
Dave Ramsey, a personal finance expert, is a staunch proponent of term life insurance. In fact, he recommends that people buy adequate coverage equal to 10 to 12 times their annual income. However, there is one group of people he doesn’t think should be covered by a life insurance policy: children.
Many insurance companies market life insurance to children as a way to save for their education or to ensure they get coverage later. However, Ramsay believes that most of these reasons are just marketing hype and that it is “absolutely not worth” buying children’s coverage because there is no “financial advantage” to doing so.
Here’s why Ramsay doesn’t think children’s life insurance is worth buying.
Nobody depends on the child’s income
Ramsay points out on his blog that the main reason people buy insurance coverage is to protect people who depend on their income. However, most children have no income – and even if they do, parents do not usually rely on their children’s income to cover the bills.
Since no one will miss out on the child’s income if the child dies, it doesn’t make sense to pay for life insurance for them. That’s why Ramsay thinks insurance companies are using other techniques to try to sell life insurance — most based on popular myths or playing on parents’ heart strings.
Life insurance is not a good way to save for a child’s education
Ramsay explained that many insurance companies market life insurance to children as a way to pay for their children’s education. However, he suggests that there are other, better ways to save for college. Life insurance tends to provide lower returns than most other investments. Insurance companies charge high fees for insurance policies And To access funds to pay tuition fees.
As a result, the idea that this is a good product to provide for future education is nothing more than a myth and no reason to buy insurance coverage at all.
Life insurance for children won’t necessarily help you get good coverage later
Another common reason people buy life insurance for children is because they think it will make it easier for their children to get protection later. Ramsay also dispels this myth, noting that coverage limits on policies sold to children are often too low to provide much protection. Children usually can’t add much to them once they reach adulthood.
Furthermore, Ramsay says that it is not necessary to purchase a lifetime insurance policy when the children are young so that they can obtain insurance later. In fact, life insurance is more widely available and affordable than a life insurance policy for most people who buy coverage in their twenties and thirties.
Life insurance may not be the best way to prepare for funeral costs
Finally, many life insurance policies are marketed to children with the promise that they will help parents cover funeral costs, which are already very expensive. But Ramsay notes that the likelihood of this becoming necessary is very low and suggests that parents simply put their money into a savings account rather than pay life insurance premiums. That way, the money will be available to cover burial expenses if the worst happens, but can be used for other purposes if disaster doesn’t happen.
Is Dave Ramsey right?
Dave Ramsey’s reasons for not buying child life insurance are good reasons, and the vast majority of parents should avoid these financial products because they are an unnecessary cost with no real benefits.
However, parents should ensure that they have adequate life insurance coverage for their lives King A life to protect their children and make sure they are provided for them in case a parent dies early.