Juvenile life insurance. You’ve seen it before; those three words almost always wind up on lists of the worst insurance products to buy.
If life insurance is primarily used for income replacement, these lists reason, why in the world would a child — assuming, of course, the child is not the family breadwinner — need life insurance?
The truth is that there are many reasons why juvenile life insurance makes perfect sense for your clients, and they have nothing to do with income replacement. Let’s start with the basics:
The death benefit. Juvenile whole life insurance policies began back in the 19th century as a way for the impoverished classes to pay for funeral and burial costs. As the infant mortality rate was high during that time, these policies made a great deal of sense.
But today, infant and child mortality is very low in the United States. (It was just eight per 1,000 live births per year for children under age the age of five in 2011.)
Therefore, the detractors focus on the very slim chances of needing the death benefit, which is typically $5,000 to $50,000. And while I agree, it’s still a possibility, and most of the cost and value of the policy has little to do with this unlikely outcome.
Guaranteed future insurability. You’ll read that the chances children will develop a chronic illness and be denied life insurance coverage in the future are unlikely, based on future advances in medicine.
In fact, while the medical field has indeed focused on (still costly) therapeutic advances for chronic conditions, cures are developing at a much slower pace. Before turning 20, children and young adults have a little more than a 1 in 300 chance of getting cancer. Also, about 1 in every 400 children under the age of 20 has diabetes. To address this challenge in the health insurance industry, an entirely new federally mandated solution has been developed.
See also: Life insurance is for kids
If there’s a history of chronic or terminal illness in a client’s family, guaranteed insurability into adulthood is a definite need, not a want. These policies can be maintained after a child becomes an adult — throughout his or her lifetime — regardless of health status.
We’ve all witnessed the hurdles in attempting to get someone with medical conditions insured, especially at a rate that fits the budget. Enough said.
Cash value. An important benefit of juvenile whole life policies is that they provide cash value accumulation over the long term. What you’ll read is that this type of policy comes with fees, service charges and commissions, and that it’ll be a while before the cash value even starts to accumulate.
While this is true in the early life of the policy — as is typical with most cash-value life policies, not just ones for children — the rewards are reaped as the policy matures. As long as premium payments continue, the cash value on a child’s life policy has a guaranteed, predictable rate of return.
With today’s low interest rates and market volatility, that’s a benefit your clients will appreciate. A 3 percent to 5 percent rate of return over 20 years is safe and secure, and much better than they will achieve with other low-risk investments.
Also, policies allow loans against the cash value at any time. This provides flexible access to cash value. Also, current FASFA (Free Application for Federal Student Aid) applications do not require the disclosure of cash value life policies when assessing a child’s need for financial aid.