Don’t buy life insurance for kids

By Randell Tiongson on June 19th, 2010

For those who know me and read my stuff, they would know that I am an advocate of life insurance, among other financial instruments. Life insurance is something Filipinos lack sorely and for those who have some life insurance, chances are it is not enough. I stand with my belief that it is a financial instrument that allows you to have peace of mind and a great risk management tool when it comes to the uncertainties in life. In fact, life insurance is the quickest, fastest and most cost-effective mechanism for financial protection in case of untimely demise or serious physical breakdown. It is a travesty that the percentage of insured Filipinos are so unbelievably low and getting proper insurance protection is not in the priorities of many of us. If I had my way, I would want every Filipino parent to have adequate insurance coverage.

However, I do not recommend getting life insurance coverages for children. In the past, I must admit that I made a mistake recommending life insurance for children and even bought some for mine as well. In retrospect, I regret doing so. Investopedia states best why you should not get life insurance for children:

“Life insurance is designed to provide a safety net for your heirs/dependents. Because children don’t have heirs to worry about and, statistically speaking, most kids will grow up safe and healthy, most parents should not purchase life insurance for their kids…”

Instead of paying premiums for coverage, it is better to use those funds and invest in mutual funds, uitf, deposit accounts and other more viable investment instruments and invest it on their behalf. Years from now, you will realize that said investments will perform so much better than the life insurance policy of your kids. Unless you child is a child star and he or she provides for you, reconsider getting a policy for your child. Instead, assess your own insurance needs — chances are you will need to add more insurance on your own life or that of your spouse.

I think a lot of insurance agents would stop reading my blogs after this post… but, I encourage you to periodically assess your need for insurance and act on it — just don’t believe those who will tell you to get for your kids too because it’s really not a good idea.

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16 thoughts on “Don’t buy life insurance for kids”

  • I agree with this. I am an insurance agent and i won’t stop reading your blogs. You give sound advise not only from theories but also from experience. You are one of the best. Thanks for sharing good stuff. God bless you more.

  • Hi Kaye,

    Rate of return of endowments in the past years have not been good, it has gone down drastically in the last 10 years. In buying life insurance, there is always a cost for the protection and it will reduce the return. Buying life insurance is first and foremost for protection, secondary for return.

  • It does make sense. I think when you have extra money and there is a promising life insurance product for children that cold help them in their adult life, why not? Try Sun Peso Provider 5.

  • how old would your cut-off age be for children? i have children aged 20-27 and i have this friend who has “pestering” me about getting insurance for them or investments as he calls them.
    thanks.

  • @ Chito — 20 to 27 aren’t children anymore. Getting insurance for their lives should be their responsibility, not yours… well, at least in theory.

  • I agree in the general principle that parents should not get insurance coverage for their children because they have no dependents and instead review their coverages and ask the assistance of an Insurance Underwriter to assess the sufficiency of their coverages vs. their networth. But in cases, children provide the income,(i.e. child stars), the parents in most cases become the dependents, then a coverage is highly reccomended. But, we are in the Philippines, where extended families is a culture. The reason, Underwriters still recommends Life Insurance for children,a top from EDUCATIONAL PLANS AND PENSION PLANS, because
    children of Filipinos, in most cases, never stop to become dependents even after age of majority and established their own family. The younger they are, the better and easier for parents to secure them…after all, the protection in its truest sense is not for them but fortheir children’s children!

  • Hi Randell, I think it’s always good to work on the premise of “it depends”. I have always been an advocate of life insurance for the sake of covering risk, so no endowments please. But I take exception to life insurance packaged to provide for the educational needs of our children like you get certain sums every year or every other year at a certain point in time, around 11th year onwards (better than educational plans). I think one good thing about this, is that you should get the waiver of premium rider so that if anything happens to you as the parent, the child gets something. But as it is, it depends, so I think this would be fine if one’s children are still very young/one live in dangerous times/ one has extra income/ and one need forced savings. But as you point out, it would also be nice to handle one’s own money. Diversification is still the name of the game. Congrats for your nice work.

  • Hi SIR RANDELL & All, I feels quiet excited in reading blogs here. It’s really good to realize that life insurance for children are not yet suitable for there stage. I honestly suggets for the parents themselves just to invest for Mutual Funds for their children, by making ITF (In Trust For account) if they still minors. As we knew Mutual Fund is a pool of money professionally managed and guided strict regulations, so it could maximize the earnings for a certain funds over the period of time. Of course, in Mutual funds usually outperform the usual alternative investments available in the market.
    Our company RSA (Rampver Strategic Advisors) actively coach individuals, institutions to achieve financial goals & objectives. As per my Boss, Mr. REX MENDOZA says “we actively encourage everyone to embrace the concept of disciplined investing & wants every Pinoy be an Investor”. If anyone may wanted to know more some Mutual Fund products that we offer,such PHILEQUITY FUNDS, PHILAM FUNDS, FIRSTMETRO FUNDS, etc. may visit our website http://www.rampveradvisors.com. We have also facebook account,please find RSA (Rampver Strategic Advisors) Our office contact 8941811 or 8121995. Our pleasure to answer for all inquiries.Thanks. More power!

  • hahahaha.. very nice topic sir Randell! thinking bout the same thing.. I’m also an underwriter and sometimes encounter this topics with some of my friends, your points makes sense and is really true.. More about Life Insurance Please.. TIA!

  • @Chito, if your adult children can’t afford to buy life insurance on their own yet, then yes, it can be a good idea to buy life insurance for them. This can be your legacy to them and your future grand children.

    @Randell, with the advent of Variable Life policies, buying a variable life insurance for your kids is similar to having a mutual fund with extra protection (and of course, additional costs too). If the underlying fund of the Variable Life policy you hold performs well, then I don’t see why you should not buy life insurance for your kids versus putting your money in a UITF or Mutual Fund. The underlying funds of the life insurance companies are also managed by people who have as much investment experience as fund managers of UITF’s or MF’s, so think of the variable life policy as just another investment vehicle.

    Another thing to consider is the disability benefit of a life insurance policy. If the child gets into an accident that causes total and permanent disability requiring long-term care, then a life insurance policy would have been a great help, wouldn’t it?

    Ask yourself these questions – Does your child actively play sports? Does your child ride a bicycle? Is there any chance at all that your child can suffer an accident that will need long-term care? If there is slight possibility that it can happen, then buying a variable life insurance policy for your child might make sense, just in case.

  • I agree with that. My mom invested also in that for my studies. the problem is the company bankrupt and I’m not yet studying at that time. It is more important that life insurance is for adults only because they are there for their children. Philippine Prudential is a life insurance that has a good service.

  • to think Im thinking myself so poor not being able to provide educ plans and insurance for my kids, thinking Im the only one in my bstch or circke of friends /community without insurance for family members.. yun pla .. God or my Money spirit guide or weakth god is protecting me..

  • After several botched up Insurance and Endowment Policies that I have experienced, I agree whole heartedly that it is not a sensible thing to buy insurance policies for children.

    The money is better utilized for other assets that draw even better returns than what Insurance Companies offer.

    This write up echoes my belief most profoundly.

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Don’t buy life insurance for kids