Quora Answer: Why Do People Take Out Life Insurance on Their Children?

The following is my answer to a Quora question: “Why do people take out life insurance on their children?  Should I take out a policy on my child?”

There are two primary types of life insurance you can take out on your child.  The first is a hospitalisation plan. Hospitalisation plans may be taken out on the child while the mother is still pregnant.  They typically cover pregnancy complication, congenital defects, and childhood diseases.  These plans may also be a rider on an investment-linked or whole life plan.  The second is a whole life or term plan.  These typically also cover disability and critical illness.  For children, it is more cost effective in the long term to take out a whole life policy because the premiums are very cheap, as opposed to a term plan.

In the first instance, the insurance policy is there to mitigate or totally cover the cost of treatment.  There are plans with provisions for mental conditions, autism and conditions such as Kawasaki Disease.  In the second place, it is meant for income replacement.  Whilst the final expenses upon death is cheap, the cost of disability and terminal illness is extremely high.  A disabled child means the loss of income because either a parent must leave a career to look after the child, or a nurse has to be hired.  There is also the cost of modifying the home for access, and the cost of therapy, treatment, and even things such as specialized wheelchairs. In the case of critical illness, there is the cost of treatment, which can be prohibitive.  The primary purpose of the plan or rider, is to covert this cost.  Like disability, there is the need to replace the income because one or both parents might need to stay with the child.