Dear Kirk: My friend has life insurance policies on her kids, but I don’t understand why. If they were to die, it’s not like they’re contributing to the household income. What am I missing? Should I have a policy on my child?

Kirk Says: This is a question that I receive all the time from my clients that have young children. One of the driving forces behind this question is fear—fear that if I take out a policy on my child, then I am pre-destined to have something catastrophic happen to them. This is an emotional topic because, as parents, we cannot even imagine having one of our kids pass away before us.

Having lived through this scenario more than once with clients that have lost a child prematurely, I can tell you that nothing you can say or do can take away that pain for the parent. However, in addition to that pain, I have seen families that are forced to cope with mounting medical bills and funeral expenses, when a modest life insurance policy or even the proper automobile insurance coverage could have eased that burden. So let’s answer the question, “Why should I have life insurance on a child?”

Medical or Funeral Expenses

A life insurance policy on a child can be an invaluable resource at the time of need, and there are many ways to provide the coverage. First, you can seek the coverage as a benefit through your employer. Many employee benefit plans offer $5000 -$15000 in coverage for free or minimal cost to you, the employee.

Second, you could potentially add your children as a rider to your existing life insurance policy. The coverage here usually ranges from $10000 – $25000 and will cost a little more than your employee benefit coverage, but many of these riders provide for future insurability with no additional underwriting.

Third is the option of purchasing a stand-alone policy for your child, such as a whole life or universal life policy. These policies provide the greatest coverage and consequently carry higher premium costs.

Future Insurability

We briefly broached this subject of future insurability in the preceding paragraph, but it deserves much more attention. The increase alone in childhood diabetes should be alarming enough to cause parents to buy a stand-alone policy on their child. Statistics show that with the rise of childhood obesity, we have seen a 90 percent rise in diagnosed cases of diabetes in the last decade.

I see people every day that wish they could get life insurance now, and they’re unable to do so because of a pre-existing medical condition like diabetes or cancer. It’s important to grasp the reality of what the future may hold, regardless of current circumstances.

Living Benefits

Some policies like whole life and universal life build cash value that can be accessed by the owner of the policy. This cash value can be used during your lifetime to pay for college education, provide funds for an emergency expense that may arise, provide a down payment for a car or home, or begin building a retirement nest egg.

Kirk Gwaltney is a Chartered Financial Consultant and a Chartered Life Underwriter in Brentwood, Tenn. Learn more about him at kirkgwaltney.com.