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What is the one thing that your kids and your pets have in common? Their ability to love you unconditionally. One of the best gifts a parent could give to their children is their financial security by way of life insurance.
Likewise, you can never repay man's best friend's love in money, but you can at least protect your pup from unexpected disaster. Pet insurance gives you the benefit of sitting back and relaxingwithout the pressure of mounting vet bills. In this article, we'll explore these custom-made insurance polices and help you to determine whether they are worth buying.
Child Life Insurance
Who Can Benefit?
If your child is a six-figure-earning Hollywood star or an heir(ess) that is set to inherit an estate (which would be exposed to enormous estate taxes) then a child insurance policy should be your first priority. Purchasing an appropriate insurance policy (such a whole life policy) will protect your child and also have some cash value set aside for future use.
If you are worried that your child will be threatened by a medical or underlying genetic condition in the future, then getting a child life insurance policy now may also be a good solution. Some policies will guarantee future insurability when the kids grow into adulthood, even if they are unable to get normal life insurance due to health-related problems. While any parent hates to think of something happening to their kids, taking care of business before disaster strikes is sometimes necessary.
Policy Types
There are many individual insurance policies on children available on the market. A standard child life policy will cover your child at a younger age (this age normally varies from one insurer to another). The premium can be paid in a single lump sum or in installments. Some insurance companies sell child life insurance policies in units, where the cost of a unit amounts to $5,000. The insurance coverage for your child ranges from $2,500 to $20,000 and this protection ends at a specified age, such as when the child turns 21. When the child reaches this specified age, the term life insurance is convertible to a whole life policy. Many insurers provide the conversion to whole life for up to five times the initial coverage. Here, no health checkups or medical exams are required for the conversion, and the policy will act as a normal whole life policy and start accumulating cash value.
In case you can't afford separate insurance for your child, you can always go for a child term rider along with you policy. Basically, riders represent additional insurance coverage for a small premium and leaves your original policy intact. Child term riders work just like an individual life insurance policy where the coverage begins at a young age and continues until the specified age (21 years, for example) or the parent reaches the age of 65 (whichever is earlier). The rider offers maximum coverage up to $20,000 and also the provision of conversion to a permanent insurance plan. Here again, the conversion is done up to five times the initial coverage without the need for further medical examination.
Some child policies also offer critical illness coverage, which provides financial compensation in the event your child becomes terminally ill.
Insurers of different states come out with various versions of a child life insurance policy or a child term rider, therefore, it would be prudent to discuss your child's needs with your insurance advisor before opting for particular child insurance.
The Cons
From a practical point of view, buying insurance policies for children is often like throwing away your hard-earned money. The reason that many of these child insurance policies are inexpensive is because the average child is likely to remain strong and healthy. If your child is healthy, then the possibility of your child dying or contracting a deadly disease in the future becomes less and less. Even if your child becomes ill, all you need is health insurance not life insurance.
In general, when you take out an insurance policy for your child, you are paying for the agent's commission as well as the cost of doing insurance business. So from an investment point of view, the amount your child gets from a whole life policy that you had purchased is less than what you would get if you had used the same amount to invest wisely. Child insurance policies may not be for everyone and, in many cases, you might be better off investing that money in mutual or money market funds and reaping good returns in the future. You can also use the amount for setting up an emergency or education fund, which will also take care of your child's future. This way, you will have money available if your child is injured and you can pay their college fees from your savings. (To find out more about these topics, see Build Yourself An Emergency Fund, Investing In Your Child's Education, and The Money Market and Mutual Fund Basics Tutorials.)
Pet Insurance
Who Can Benefit?
A pet insurance policy helps you to pay for your pet's treatments, surgeries, lab fees, X-rays and more. It even protects your pets against accidental injuries and illnesses. Some policies also pay out if your pet dies or gets lost. (To read more about pets, see The Economics Of Pet Ownership.)
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