There are a number of reasons why purchasing life insurance on a child can make sense. For example, the proceeds from a child's life insurance policy can provide financial support for the payment of a funeral and other final expenses, such as uninsured hospital and / or medical bills.
But there are other ways in which life insurance for a child can be a beneficial financial tool, as well. Many people use permanent life insurance - the type of policy that offers a death benefit and cash value - as a college savings option.
Because life insurance cash value is allowed to grow on a tax-deferred basis, these funds can compound - with a guaranteed rate of interest - over time. Plus, unlike traditional 529 college savings plans, the money that is in a life insurance policy is not required to be used solely for education-related expenses in order to maintain its tax-advantaged status.
Because of that, the funds that are in a permanent life insurance policy could also be used for other future needs by the child, such as for a down payment on a first home and / or the purchase of a vehicle.
In addition, a permanent life insurance policy on the life of a child can assure him or her that they will have protection for the remainder of their lifetime (provided that the premium continues to be paid). This can be particularly advantageous if the child contracts an adverse health condition in the future that may otherwise deem them to be uninsurable.
There are many different options that are available today for covering a child with life insurance. When purchasing a child's life insurance policy, however, it is important to make sure that the coverage is obtained from a reputable life insurance carrier.
Working with an independent insurance agent can allow you the ability to shop and compare coverage and premium rates from numerous insurers, and from there to choose the plan that works the best for you and your specific needs.