There are several reasons why you would want to insure your child. Maybe you can’t get insurance on yourself and you’d like to lock in their future insurability. Maybe you’re cosigning their student loans. But regardless of the reasons, there are rules when it comes to ensuring your child.
The first reason why we see parents wanting to ensure their child is because they want to implement the infinite banking concept, but they weren’t able to obtain insurance on themselves. And so they’re going to own the policy and the cash value with the child as the insured, which is typically very possible.
Another reason why you would want to insure your child is to lock in or guarantee their future insurability. And in many cases, getting a policy when they’re young can help them throughout life as they mature and they take on their own family. Securing a death benefit at a very young age at a very low price could be very advantageous for them down the road.
Additionally, you could add a rider onto your whole life policy that guarantees your child the ability to purchase additional insurance, maybe $50,000 or $100,000, without showing any evidence of medical insurability every few years somewhere down the road.
Another reason why life insurance may be appropriate to insure your child is if you’re cosigning their student loans. This way, if your child dies before those loans are paid off, you have a death benefit to immediately pay off the balances. A lot of times people say, Jeez, I don’t want to insure my child. I just don’t even want to think about it. We’ll think about this. The hardest thing in life is to have to pay a bill that you made to educate your child, on an installment plan.
Now that we’ve gone over the reasons why it would make sense to insure a child, let’s dig into what are the rules when it comes to placing insurance on that child.
Now, the amount of insurance that the child is going to qualify for will vary depending on which company you go with. They all have their specific rules on how much insurance the child will qualify for, but for minor children, it’s typically a factor of how much insurance is on both parents. If mom has $100,000 on her life and dad has $100,000 on his life, that gives us $200,000 of insurance. The child would typically qualify for either $100,000 all the way up to over $200,000 of insurance. Based on the amount of insurance the parents have. And again, based on the company that you utilize.
The second scenario we see a lot is when the parents are trying to insure a child who is no longer a minor. So age 18 and up, when you’re dealing with an adult child, it’s going to be factored off of their income or their income potential.
The other day, we’re dealing with a client who wanted to ensure their adult aged child, who was actually a sophomore in college, and the insurance company came back and said, Well, how much does this kid earn? And unfortunately, he didn’t have a lot of earnings, but we were able to provide them with his major field of study. The insurance company actually projected his lifetime earning potential and issued a policy based upon his future potential income.
Now, if you’re insuring your student for the amount of their student loans, the insurance company would ask, what is the loan balance or what amount of loan do we expect by graduation? And you will qualify for that amount of insurance to cover the loan balance. The key is there are different rules and you have different choices depending on how much insurance you want, how much insurance you need, or how much insurance you can afford.
If you’d like to get started with the underwriting process and insuring your child, whether a minor or adult child, check out our website at Tier1Capital.com to schedule your free strategy session today.
Also, if you’d like to learn more about our exact process and how we put it to work for our clients, check out our free webinar, The Four Steps to Financial Freedom.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.