When you bring your brand new bundle of joy home you will have a lot of thoughts of his or her future. You want to ensure your newborn baby gets the best so you will likely start planning for the future. Perhaps you will start putting away a little bit every month in order to pay for college tuition or a vehicle. Planning for the future of your children is a smart thing to do and there are wise investments that will give you a leg up when it comes to making sure you have enough when needed. However, when it comes to life insurance, is this wise investment? Do newborn babies really need life insurance?
One thing you can count on when you have a newborn is the abundance of offers you will receive. You will get everything from coupons to specials to investment advice. Most people who come home from the hospital will receive a few offers for low rates on life insurance. The selling points are fairly convincing. You can secure the financial future of the child and make sure the child is insured in case of a tragic accident. However, the point of life insurance does not necessarily apply to newborns.
Life insurance is there to help the survivors in the family when a primary or sole source of income dies. This way the family will not suffer without the income that was normally generated by the bread winner. But newborn babies do not provide any income. In fact, newborn babies use a lot of income but certainly do not generate any. So why would you insure their life? One possibility is to defray the cost of funeral expenses in case of a tragedy. However, the cost of this is fairly inexpensive and can be accumulated in a short amount of time through an investment account.
When asking financial advisors whether or not it is a smart financial move to make most will say no. There is typically no good reason why a young child needs life insurance. Yes, the premiums are low but are you getting any benefit from it. Some may think that a cash value life insurance policy may be highly beneficial as the child reaches adulthood. However, consider the other options that are available to you. A straight savings account is secure but will only earn a small interest rate. Other investment accounts are available that will enable you to save for the future while earning a much higher rate of return.
While a cash value life insurance policy may have a significant amount of money accrued by the time the child is an adult there are much more lucrative investments that will serve the same purpose. Whether you want to save money for college or to give the child a head start when he or she reaches adulthood, there are ample investments that will be more beneficial than a life insurance policy.
Consider discussing options with a financial advisor before signing a policy. Consider your goals and your contingencies. If you want to secure the money for possible funeral expenses you can gauge the amount of this and save until you reach this number. Any additional amount over this can be used for other things. In general, if you want your child to have life insurance it is better to wait until they are in their twenties or have dependents who rely on the income they generate. Until then the cost of a life insurance policy is actually more expensive in comparison to the benefits that will be received. Instead, use the money you would have used on premiums for other investment options. It will allow you to pay the same amount of money over the years but will yield a lot more benefit.
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