If you're thinking about buying life insurance for your child, consider the decision carefully. The main purpose of life insurance is to replace income lost after someone dies, and there's little doubt that your income could decrease upon your child's death, due to lost time at work or lost productivity. However, you should also consider protecting your child's future by purchasing more life insurance for you and your spouse.
Isn't it smart to buy insurance now, while the rates are low?
While it may be true that life insurance policies for children are inexpensive, the cost alone shouldn't be the only consideration. A more important factor is the need for coverage both now and in the future. You might especially consider purchasing life insurance for your child if he or she is at risk for developing a specific medical condition that runs in your family or has a condition that is likely to worsen over time.
Isn't it smart to buy cash value insurance now, to help save for college?
The tax-deferred cash value component of cash value life insurance is sometimes used to accumulate funds to pay for college. You may be allowed to withdraw paid-in premiums with no tax consequences, and borrow against the earnings at low or no interest. (Keep in mind, though, that policy loans and withdrawals may affect the death benefit.)
Remember the bottom line: your decision to purchase life insurance should center first on the death benefit. Buy life insurance because you need the financial protection it offers, not only as an investment alternative.
What you can do instead
When deciding which family members to insure, and which life insurance policies are appropriate, consider how your family's income might be affected. To specifically protect your child, you may want to purchase additional coverage on your own life and on your spouse's life. Since you and/or your spouse support your family financially, your child's financial future would be profoundly affected if you died. Make sure that the coverage on both parents' lives ensures that there will be enough money for day-to-day living as well as for college expenses, even if something happens to one of you.
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The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
This article was prepared by Broadridge.
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