As soon as your name is put on the first mailing list of new or expecting parents you start getting advertisements for life insurance on your baby. This has always made me kinda crazy. Kids don’t need life insurance!

The point of life insurance is to replace your income (or services, for the stay at home parent) so that your dependents can continue their standard of living. So unless your newborn has an income and dependents they don’t need life insurance.

First off, it is very unlikely that the worst will happen. But if it does you should use your emergency fund to pay for the funeral and other costs. I really can’t think of a bigger emergency that could occur. If you don’t have an emergency fund then you should be saving every extra dollar and not buying things like life insurance on your kids.

One advertised benefit of baby life insurance is that it’s a whole life policy. Which means that it doesn’t expire like term life does. Most financial planners avoid whole life policies even for adults. You pay more for whole life because some of your payment is invested which builds the cash value. Financial planners argue, and I agree, that you should pay less for the life insurance and invest your money yourself.

Another stated benefit is that between the ages of 21 and 28 the child has the option to double the amount of their policy no questions asked. Which means that if they are uninsurable because of a disease they can still get life insurance. First off, it’s highly unlikely that at age 21 they will be ill enough to be uninsurable. And secondly, even if they double their coverage, it still isn’t very much life insurance. The largest amount available with the Gerber life insurance plan is $35,000. So, at age 21 they would only have $70,000. That isn’t going to be enough if they have children. They would still need to buy more life insurance.

The only good thing I can say about this type of insurance is that it isn’t very expensive. A death benefit of $5,000 is $3.18 a month for a newborn. The most expensive plan they offer, according to a flier I received, is a death benefit of $35,000 for $33.04 for a 12 year old. I guess if you are debt free, have a fully funded emergency fund, retirement plan, and college fund and you still wanted to buy life insurance on your newborn I wouldn’t try to stop you. But unless you fall into that almost non-existent category, I ask you to think twice about this purchase.

Picture by: sean dreilinger

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