The primary purpose of life insurance is income protection. When the breadwinner of the family suffers an untimely death, his earning capacity is buried with him. Other family members may also be contributing to the entire household income, but since he provides the biggest share, the loss will be a big blow to the others. The family he leaves behind suffers an economic loss. There will be a drastic change in lifestyle.
If we follow this premise, then children do not need life insurance protection at all because they're not contributing yet to the household income (unless we're talking about child stars here).
Usually, parents purchase life insurance policies with the intention of creating a savings plan for their kids. Life insurance, after all, is one of the most efficient savings tools. Premium payments made will translate into maturity benefits after certain number of years. Parents can use this amount as college or wedding fund for their children.
What about the insurance side of it?
Child mortality, while rare, is not unheard of. Parents who lose their children cope differently. My secretary reported back to the office a week after her one-year-old son’s funeral. Being busy was her way of coping. I asked her to take the rest of the month off but she said it was the best way for her to heal.
Others may have different ways. They can go on an extended or indefinite leave, if they are employed. Or if they are professionals, they may stop working until they gain their bearings back.
If this is the case, income stops but the bills still come in. Expenses start piling. While banks may sympathize, the only thing they care about is their bottom lines. That is the harsh reality. If the parents have something stashed away, then that is a good thing. But what if they don't? Or their savings are not enough?
This is where insurance plays a role. When parents get life insurance for their children, they do so without the intention of enriching themselves. But faced with a tragic event, insurance proceeds come in handy. They now have funds to cover part or all of their bills. This will eliminate stress from collectors who call and bug them.
The proceeds will also allow them to recoup the expenses they incurred especially if their children had to go through medical treatment.
The next time an insurance advisor approaches you about buying insurance for your kids, do consider it.
One rule of thumb though: parents should be insured first before they start taking out insurance policies for their children.
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