Guide to Life Insurance for Children
21st November 2022
When it comes to life insurance for children, first ask yourself: Why do you want to buy life insurance for your child? Are you trying to save funds for their college or university education? Or do you want a policy that will pay out a death benefit to cover funeral expenses in case of death?
In this article, you will learn about the different types of life insurance plans for children to help you decide which type might be best for you and your family.
Whole life insurance for children
A whole life insurance plan offers a death benefit, guaranteed cash value, and non-guaranteed dividends. This type of plan will provide your child with lifelong coverage until they reach the age of 100. In case of death of the insured, then their beneficiary receives a lump sum death benefit payment that can be used toward funeral expenses.
Over time, the policy accumulates cash value and dividends, which can be accessed at any time through a withdrawal, loan, or policy surrender. When your child reaches adulthood, they can use these savings to pay for their university education, travel, their wedding, or other major expenses.
Whole life policies have level premiums, which means premiums are guaranteed to stay the same. That’s why it’s a good idea to take out a whole life policy for your child when they are very young: you can secure low premiums for the entire payment term. What’s more, when your child is old enough, they can take over the policy and enjoy continuous coverage without needing to undergo new underwriting. This is particularly useful if your child has developed a health condition during the course of the policy, because their condition will continue to be covered without exclusions or premium loadings.
Education/savings whole life insurance for children
If your main goal is to save up for your child’s education through a life insurance product, you might want to consider whole life insurance products with a clear emphasis on long-term wealth accumulation, savings, and investment. Whole life education/savings plans tend to have higher returns than ordinary critical illness and whole life insurance plans.
There are many investment-focused insurance products on the market in Hong Kong tailored for saving up for your child’s education. Some of these plans provide financial rewards for your child’s academic achievements, for example attaining a certain IB result or SAT score. These products may be especially attractive if you are planning to send your children to study overseas, where tuition fees and daily living expenses can be exorbitant.
To find out which education/savings whole life insurance plan is right for you and your family, you can get in touch with an Alea advisor, who can recommend products tailored to your circumstances. The best part? Consultations are completely free.
Critical illness insurance for children
Critical illness insurance is a type of life insurance product whereby the insurance company pays out a lump sum upon diagnosis of a predefined critical illness. The illnesses covered may vary by insurer but generally include cancer, stroke, and heart disease.
This lump sum payment can be used to relieve the financial burden on your family if your child is critically ill. For example, it can compensate income lost if you have to take a leave of absence to take care of your child or cover transportation and hotel expenses if you have to travel to seek treatment.
Critical illness insurance – specifically whole life critical illness insurance – also has a guaranteed cash value and non-guaranteed dividends and bonuses that can earn interest and be withdrawn by the policyholder.
Note, however, that critical illness insurance is not the same as health insurance. Rather than issuing a lump sum payment, health insurance reimburses you for the medical expenses arising from illness or injury, including the cost of cancer treatment (up to annual limits). It’s a good idea for everybody to be covered by health insurance.
Term life insurance for children: Not recommended
Unlike whole life insurance, term life insurance has no savings component. Instead, it pays out a death benefit upon death of the insured within a specified term (usually 10, 20, or 30 years). Typically, if the insured person outlives the policy term and does not renew the plan, then there is no retrievable value.
Because term life insurance offers no savings, dividends, or cash value, a term life policy is not the most advisable product to take out for your child.
What life insurance should I get for my child?
The best type of life insurance for your child depends on why you want your child to have life insurance. Are you interested in the death benefit? Or are you trying to save up for their education?
With these questions in mind, the best thing to do is talk to an insurance advisor or broker, who can help you determine a course of action and give you personalized recommendations for insurance products. They can also answer any question you might have.
When is the best time to get life insurance for my child?
The best time to get whole life insurance for your child is when they are young and healthy. This way – for policies that have level premiums – you can lock into a lower premium that won’t change over time, and you can make sure your child will be covered for any illness or condition they might develop over the course of the policy.
Many insurance policies will cover children as young as 15 days from their date of birth.
Which life insurance is best for my child?
The best life insurance for your child depends on your financial goals. You can scroll up to read about the different types of life insurance, their uses, advantages, and drawbacks. Better yet, you can get in touch with an insurance advisor or broker for free guidance.
Can I cash in my child's life insurance policy?
Either the policyholder or insured person (if 18 or above) may access the cash value of a life insurance policy.
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This article was independently written by Alea and is not sponsored. It is informative only and not intended to be a substitute for professional advice and should never be relied upon for specific advice.