Should I Insure my children?
I have been asked this question a million times, and I have said NO a million times.
However, like all personal finance (and especially life insurance) topics there is no straight forward answer.
So let me start by saying NO. If your children are young, and dependent on YOUR income they do not need any life insurance at all. If you love them, YOU need life insurance and the children should be the nominees or beneficiaries.
However, there is one big solid exception. That is when the kid is 20 years of age and YOU are spending YOUR hard earned money on the kid’s higher education. Suppose your daughter has got admission in an Ivy League school and the fees is about US $ 150,000. This is not a small amount of money and your kid needs a loan / gift from you. Or a loan from a bank – YOU will obviously have to co sign the loan. For all practical purposes this is YOUR LOAN, and this has to be repaid.
Now if your kid does the course, passes he exam he/she will repay the loan. You have no doubt about that. Your kid is responsible.
Sure if he/she does not get a job immediately, you may undergo some stress, but your kid will repay the loan.
In a sad case, which I hope happens to NOBODY, what happens if your kid avails the loan pays the fees, completes the course, but dies before he/she can repay the loan?
So at this stage the policy comes into play. So the moment your kid takes a loan (with you as the guarantor as is wont), the kid should also take a TERM LIFE INSURANCE for that amount.
Now is it a MUST? MUST I take a life insurance plan for the kid. Well, again it depends on the following scenario:
1. You have a personal net worth of Rs. 20 crores, and this US $ 150,000 is chicken shit for you. You do not need to worry about this at all.
2. Your net-worth is Rs. 100 lakhs, you are young (age 50 for yourself and wife’s age is 46) – the amount of money will hurt you financially – in fact it will ensure that your old age is in penury. WELL YOU MUST TAKE INSURANCE the day you apply for a loan…for a period of time in which you think that the LOAN WILL GET REPAID….So if you think that the loan will be repaid in say 7 years, take a term insurance for 10 years…for US $ 150,000 NOW.
Raja
Absolutely agree with the logic. Saying this from my experience of being the elder brother of a kid who lost is life in the college swimming pool in 2nd year of engineering in REC Trichy, and if i may add as a rant, due to gross negligence of the college authorities.
2 installment’s of his education loan were already paid by father’s employer(Bank) and no insurance was taken. Paying back the loan bought un-necessary burden which could have been avoided if insurance was taken.
Regards
bharat shah
one more case, where it might not be , but you have spent a sum for education of a child , and who is nearing to completion of education, and start earning a sum, and you find a hope from it for any reason at least up to his marriage, it is not bad to get his life insured by term insurance. i had done for my son.
subra
Bharat Shah teach an EARNING son about insurance, do not buy it for him. Cut the umbilical chord…I see the Gujju community keeping the umbilical chord till the son is 50 years of age…come on let him be a man!
param
the insurance need is quite valid for a student taking on an expensive course. but i wonder if the insurance company would actually write the policy. besides the mortality rates, an important factor is the earning capacity, and unless the course is completed, the earning capacity cannot be high enough to justify the policy, irrespective of who pays the premium.
bhrat shah
thank you for your bitter but correct observation and advice at least for our case but i am not sure who keeps the umbilical chord :myself, my son or the god.