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By Chris Huntley
July 31, 2020
Mark Wang for Money

Given that life insurance primarily protects against lost income, financial experts often claim it’s unnecessary for children, since kids make little or no money. Some also argue that life insurance plans for children are bad investments, the costs of which could better benefit the child if it were spent in other ways.

Yet there are reasons to consider insurance on your children. I have policies for all three of my girls, because of what they might cost my wife and I in lost wages were the worst were to happen. A policy also protects you financially against debts and other costs that could fall to you in the event of losing a child.

In short, insuring kids provides peace of mind against the harrowing possibility of losing them, and then having to cope with the financial fallout as you’re also reeling emotionally.

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Read on for a rundown of my rationale for buying the policies I did on the lives of my three daughters before each of them reached their first birthday. I also acknowledge that some parents may not want or need to buy such policies. There’s advice on making the decision, which draws from my 16 years of experience as a life-insurance agent.

Lost income

The impetus for insuring my own kids starts with a tragedy that happened close to me. A few years ago, two good friends of mine sadly lost their one-year-old son. Devastated, the husband, who was the family’s breadwinner, was unable to return to work for nearly two months. He was not paid during this period, and so the loss created both an emotional toll and real financial hardship.

This is the exact scenario I feared when my children were born. Many employers offer bereavement leave, which allows employees to take time off when a close family member passes away. But in no state is the employee is entitled to pay during this time off. I worried that if something happened to one of our children, my wife and I might both lose income during weeks or months in which our grief left us unable to work.

I figured a $50,000 policy on each child would give us 3 to 6 months of income. However, it cost only a few dollars more a month in premiums for a policy that doubled the coverage, to $100,000. So that’s what I settled on. The policy cost just $9 per month, which was an extraordinary deal. As a rule, while I’ve seen pricing as low as $3 per month for a $5,000 policy, the typical cost is $12 to $14 per month for a $20,000 policy — which should cover at least a month of lost income, plus some other expenses.

Some parents might, of course, have exceptional workplace benefits that would continue to pay them during a prolonged bereavement, or have the financial resources to easily weather a prolonged period without income.

Neither scenario represented my situation. Today, my children are 12, 10, and 7 years old and healthy, and I’m still happily paying on those life insurance policies.

Funeral costs

The grim realities of losing a child include the need to say goodbye to them, and to cover the cost of the arrangements that allow just that. According to Choice Mutual, the average cost in the U.S. for a funeral with burial and viewing is $7,360.

Even though my wife and I were earning good money at the time we had our children, an expense of that much would have depleted a huge percentage of our savings. Our situation was typical of other parents our age. A recent study by The College Investor found that the average net worth of millennials (ages 19 to 37 today) is just $10,400.

Again, if you’re wealthier than the typical parents of younger children, and could easily afford a hit like that to your savings, insuring against possible funeral costs may not be a priority. But if a $7,000-plus funeral bill would be a stretch, as it was for me when my girls were born, this potential expense might be another reason to consider buying a life insurance policy on your child.

The future debts of my children

When I bought life insurance on my children, another risk I wanted to avoid was co-signing on future loans for my kids, and then winding up on the hook for those debts if the unthinkable were to happen. Put another way, I wanted to be able to help my kids, and sign for those debts, without worrying that I might be unable to pay them in future, for the worst possible reason.

An example from my life inspired me. At 20 years old, I bought my first car, a beautiful, pearl-white Nissan Maxima. I had saved up $10,000 for a down payment, which was a real stretch for me in those days. Thanks to my earnings as a parking valet, I could easily afford the $157 monthly payment.

The problem was I had no credit history and no credit score, and so was (predictably) declined for the loan. My grandfather ended up having to help by co-signing on the debt. I didn’t realize it at the time, but had anything happened to me, it would have become the responsibility of my grandfather to continue paying the loan. In other words, it would have become his obligation to pay off.

Before I took out policies on my children, I remembered this story. I knew it would be good to have some life insurance on them in case I had to co-sign on a debt of theirs. I was less worried about doing so on an auto loan than I was on co-signing a student loan, which could bring a far greater financial debt. Some 93% of all private student loans have a co-signer and the average cost for private college tuition with room and board is $46,950 per year.

That said, about a third of students don’t take on debt while getting a four-year degree, and that proportion rises for lesser degrees, according to the National Center for Education Statistics. And when students do get loans, it’s usually from the federal government which, unlike private lenders, does not require a co-signer.

That said, having a life-insurance policy on your children could help clear their debts after they die, and so would provide welcome relief at a very tough time.

Making the decision

The compelling reasons to purchase life insurance on your children include the desire to protect against the loss of your own income, help pay funeral costs, and to insulate yourself against future debts you might inherit were your child to die.

On the other hand, you may not financially need life insurance protection for your kids. You might prefer other ways to give to your kids what you’d pay in premiums, such as further helping to pay for college or providing a cash gift to them at a certain age.

If you shop for a policy, be aware that it will be what’s known as whole life insurance. This type costs more than term life insurance, which I generally recommend. (My own kids’ policies are term ones, but this type is no longer available for children.) Whole life policies also feature a savings component known as cash value. As you shop around for life insurance, then, compare policies on not only on premiums but the value of this cash component.

You can also buy insurance on your child, and probably at lower cost, through what’s known as a “child rider” on your own term-life policy. But that’s an option only when you first open your policy; a child can’t be added to your coverage later.

Chris Huntley is a life insurance agent, the founder of Insuranceblogbychris, and president of Lifeinsuranceshoppingreviews. The views in this story are his opinion and do not necessarily represent the views of MONEY.

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