Why Dave Ramsey advises against buying life insurance for children
Read this before getting coverage for your children.
Personal finance guru Dave Ramsey is a big believer in term life insurance. In fact, he recommends that people buy enough coverage to equal 10 to 12 times their annual income. However, there is one group of people he believes shouldn’t be covered by a life insurance policy: children.
Many insurers market life insurance for children as a method of saving for their education or to make sure they can get coverage later. However, Ramsey believes that most of these reasons are just hype and that it is “absolutely” not worth buying a blanket for children as there is “no financial benefit” in doing so. .
Here’s why Ramsey thinks children’s life insurance isn’t worth buying.
No one relies on a child’s income
Ramsey points out on his blog that the main reason people buy insurance coverage is to protect people who depend on their income. However, most children don’t have an income – and even if they do, parents usually don’t rely on their child’s income to cover the bills.
Since no one would miss out on a child’s income if the child died, it makes no sense to pay for life insurance for them. This is why Ramsey believes that there are other techniques used by insurers to try and sell life insurance, most of which are based on common myths or play on the hearts of parents.
Life insurance is not a good way to save for a child’s education
Ramsey explained that many insurers market life insurance for children as a way to pay for their children’s education. However, he suggests that there are other better methods of saving for college. Life insurance tends to offer lower returns than most other investments. And insurers charge high fees for policies and access funds to pay tuition fees.
Therefore, the idea that this is a good product to save for future education is nothing more than a myth and is no reason to purchase insurance at all.
Life insurance for children won’t necessarily help them get good coverage later on
Another common reason people buy children’s life insurance is that they believe it will make it easier for their children to get protection later on. Ramsey also dispels this myth, saying that the coverage limits for policies sold to children are often too low to provide sufficient protection. Children usually can’t add much to them once they reach adulthood.
Additionally, Ramsey says you don’t have to buy a whole life insurance policy when kids are young so they can buy insurance later. In fact, term life insurance is widely available and more affordable than a whole life insurance policy for most people who buy coverage in their 20s and 30s.
Life insurance may not be the best way to prepare for funeral expenses
Finally, many children’s life insurance policies are marketed with the promise of helping parents cover funeral costs, which are indeed expensive. But Ramsey points out that the likelihood of this becoming necessary is very low, and suggests parents are simply putting money into a savings account rather than paying life insurance premiums. That way, the money would be available to cover burial costs should the worst happen, but could be used for other purposes if disaster didn’t strike.
Dave Ramsey is he right?
Dave Ramsey’s reasons for not purchasing children’s life insurance are valid, and the vast majority of parents should avoid these financial products because they represent an unnecessary cost with no real benefits.
However, parents should make sure that they have sufficient term life insurance coverage on their own to protect their children and ensure that they are provided for in the event of the premature death of a parent.