Should You Buy Life Insurance for Your Newborn?

Trying to decide whether or not to buy life insurance coverage for your newborn child? There are pros and cons to buying life insurance for a newborn. You may want to ask whether or not you need life insurance for your newborn. Is it something you can afford? Are there other options that would better benefit your needs? It is important to explore the benefits of different options available to you before making a decision.

What is life insurance typically used for? Can it be useful for your child?

Life insurance is generally a means of replacing a person's income in the event something happens to them. This is generally not a concern with newborns. Because newborns grow quickly, if you choose to buy life insurance for your newborn, you may want to choose a life insurance policy, such as permanent or whole life insurance, that increases in cash value over time and that you can withdraw from in the future. One reason frequently given for buying permanent life policies for children is to protect their future insurability. When your child is a young adult, he or she will generally be able to renew their life insurance, even if they have developed diseases that may be difficult or expensive to insure. A permanent life insurance policy typically continues as the child ages and into adulthood. A benefit of a permanent life insurance policy is that the growth in value of the cash policy is generally guaranteed.

What are some other alternatives for saving for your child’s future?

If you are looking to buy life insurance for your newborn as a means of saving money for your child to go to college, a high interest savings account or a 529 education plan may be a better alternative. Insurance policies are not designed as savings accounts and will cost you money in premiums and other possible fees.

There are two types of 529 plans: pre-paid tuition and college savings plan. A pre-paid tuition plan allows you to buy college credit at current rates for use later. Check to see if this type of 529 plan is available in your state. With a savings plan, growth is based on market performance of your investments, typically mutual funds. With a savings account or 529 education plan, you do not have to pay any premiums as you generally do with a life insurance policy.

Weigh your options before making a decision that best suits your needs and budget!

Pros:

• Newborn life insurance protects the future insurability of your child.
• A permanent or whole life insurance policy with cash value you can borrow from typically increases at a guaranteed value over time.
• A permanent or whole life insurance policy generally continues as your child grows into adulthood.

Cons:

• A life insurance policy may not be the most economical way to save for your child's education.
• Premiums for a life insurance policy for your newborn are an additional expense.

Above all, insurance dollars should first be spent on parents, then children. Make sure your child's parents are both insured with life insurance. You do not want to be underinsured and paying for life insurance for your child. It is more important that you be well-insured first before deciding on whether or not to buy life insurance for your newborn.

Kathleen Firtle is a frequent contributer to life insurance and financial planning blogs, including Best Life Insurance Deals.