Emotions run high when parents and grandparents plan for a child's future. If you are considering life insurance for your child, it's a good idea to step back from the sales pitches and consider your and your child's needs before you make a purchase decision.
Often parents and grandparents are pitched "special opportunities" by insurance agents to add children to their policies - opportunities that the agent claims come up only every few years - so there's pressure to make a decision right away. Before you buy, ask yourself what benefit comes of buying life insurance on your child. Because the purpose of life insurance is income replacement after a death, and children generally do not provide income, it may not be the right purchase for you.
However, one of the best reasons to insure children is to cover final expenses after a death, such as funeral arrangements, which can range from $5,000 to $20,000. The average family may not have the funds for those expenses, and life insurance can help.
Buy life insurance for child with your head, not your heart
If you buy a policy on a child, most policies have an option for the child to buy additional insurance when he or she comes of age - a sales pitch suggesting that children will have trouble buying insurance when they are right out of college, for example, and on their own for the first time. But the reality is that most young adults can easily obtain insurance coverage for reasonable rates.
If you are worried about funeral expenses, you can buy term life insurance policies with a small face value to cover them. Of course, if you have the means, you can instead save enough money for such emergencies. That way, the money is available for other needs, such as education or buying a new home, and not just if an unlikely disaster strikes.
Life Insurance Policies on the Web
Insurance customers now have a choice: they can go to an agent, or buy their insurance over the phone or on the Internet. Some insurance companies are now offering policies, only available on the web.
Web-only life insurance policies and annuities can offer major pluses. You can get coverage cheaper and faster, and you don't have to visit an insurance agency to buy them. Your choices might be limited, however. If you require a variety of features on your policy or annuity, you might be better off going to an agent.
When is buying insurance online the best option?
Some Internet-only life insurance policies don't offer much variety in regard to policy features. More complex life insurance products, such as whole life, variable life, and variable universal life, require more explanation than some web sites provide. That's why many insurers limit their online offerings to policies that are easily understood.
"A lot of these products that agents sell have every bell and whistle you can think of," says Arthur Fliegelman, vice president and senior credit officer at Moody's Investors Service. "To sell online, you want a nice, streamlined, simple product."
Annuities in cyberspace
In addition to life insurance, you can buy annuities that are exclusive to the web.
There are drawbacks. Some popular features on variable annuities sold through agents, including long term care riders, guaranteed minimum income benefits, and bonuses, are not available on web-exclusive annuities. Some of the annuities don't carry death benefits, in which beneficiaries would receive what the annuity holder had put into the contract.
One advantage to many online annuities is the ability to make an unlimited number of transfers between funds and sub-accounts.
Hot commodities on the web?
As more people become Internet savvy, and feel comfortable making major purchases online, web-exclusive insurance might be an attractive option. Louisiana's acting Insurance Commissioner, Robert Wooley, says anyone buying insurance online should make sure they fully understand the terms of a policy, before buying it. "We're glad to see understanding is on the rise," Wooley says. "However, it's still troubling that while two-thirds of adults feel they have the right amount of insurance, only one-third seem to fully understand what they have."
Arthur Fliegelman of Moody's says online insurance providers have not done enough to give consumers the ability to service their insurance accounts, which includes paying premiums, changing an insurance beneficiary, or changing coverage. Fliegelman says online insurance providers need to make their services user-friendly, if they want to increase their share of the marketplace.
