Is Life Insurance For Children And Non-Working Partners Necessary?

Life insurance is a core component of personal financial planning. It can provide financial protection, security and peace of mind in the event of an unexpected tragedy. While most people understand the importance of life insurance for income earners, many wonder if it’s necessary for children and non-working partners. In this post, I’ll share some of the key factors involved in deciding whether life insurance for children and non-working partners is necessary, evaluate some of the key benefits and drawbacks, and provide tools and resources to help you choose the right policy and coverage.

First, What is Life Insurance?

Life insurance is a financial contract between an individual and an insurance company, where the insurer agrees to pay a death benefit to the designated beneficiaries if the insured person dies. In return, the policyholder pays regular premiums. The primary purpose of life insurance is to replace lost income and cover key expenses like funeral services, debts, retirement savings, and education costs for dependents. The two most basic forms are permanent and term life insurance.

Exploring Life Insurance for a Non-Working Partner

Although a non-working partner does not contribute to the household in a direct financial manner, their contributions to the household could have large financial implications if they needed to be replaced.

Key expenses to consider:

• Childcare: If the non-working partner handles childcare responsibilities, the sudden need for daycare or after-school care can be a major financial burden.
• Household Services: Chores like cleaning, grocery shopping, and cooking may need to be outsourced. In some households, it also means needing support in managing the family calendar.
• Emotional Impact: The death of a partner can lead to missed workdays, increased emotional stress and extended time for grieving. All of these factors can greatly impact income and strain financial resources.

The Benefits of Life Insurance for a Non-Working Partner

1. Financial Security: If the non-working partner dies, the payout can help cover costs such as childcare, housekeeping, and other essential services.
2. Peace of Mind: The surviving partner won’t have to worry about immediately taking on additional financial responsibilities and will be able to afford to get the support they might need.

The Drawbacks of Life Insurance for a Non-Working Partner

1. Cost of Premiums: Even though premiums may be relatively low, they are still an additional cost, which might not feel justified for those on leaner budgets and who may have other options to lean on in the event of their non-working partner passing.
2. Lack of Need: For some individuals, there may not be an added financial burden. They may have plenty of help and support available from family, friends, and their community. Alternatively, they may consider themselves self-insured.

Exploring Life Insurance for a Child

The idea of purchasing life insurance for a child can feel uncomfortable since children typically don’t have income to replace. However, some parents may consider it as a long-term financial planning tool or a means to cover unexpected funeral expenses.

The Benefits of Life Insurance for Children

Here are a few common reasons parents purchase life insurance for children:

1. Funeral Costs: The death of a child is an emotionally devastating event, and unexpected funeral costs can add financial strain during an already difficult time.
2. Locking in Low Premiums: If you purchase a policy while your child is young and healthy, you can lock in low premiums for life. This means your child will have affordable coverage well into adulthood, even if they develop health issues later.
3. Financial Planning Tool: Whole life insurance policies for children can accumulate cash value over time, which can be accessed later as a form of savings or an investment with a guaranteed death benefit.

The Drawbacks of Life Insurance for Children

1. Low Financial Impact of Loss: While funeral costs are a consideration, the financial impact of losing a child is generally much lower than losing a breadwinner or a non-working partner.
2. Better Alternatives: Many financial experts argue that there are better ways to invest in a child’s future such as education savings accounts, Roth IRAs for kids, or investment accounts.
3. Cost of Premiums: Whole life insurance for children tends to be more expensive than term life insurance, and the benefits may not outweigh the costs.

Determining the Right Amount of Life Insurance

For a Non-Working Partner

Here are some steps you can follow to help determine the right amount of life insurance for a non-working partner.

1. Calculate Replacement Costs: Estimate how much it would cost to replace the household services they provide. This could include the cost of childcare, housecleaning, transportation, and meal preparation. You can use a needs calculator like this one to help.
2. Factor in Grieving Time: You may want to allow for time to grieve without financial pressure. Include an estimate of how much money would be needed to take a leave of absence from work or to reduce hours temporarily or if needed longer term.
3. Consider Future Needs: Factor in future expenses, such as paying off a mortgage, saving for children’s college expenses, or covering other long-term financial goals that may not be met due to any reduction or change in future income.
4. Employer Benefits: Check your employer benefits for any support that you would be eligible to receive if you lost your partner. This can include paid time off, financial support and resources, counseling, and other services.

For Children

When determining life insurance for children, the financial impact can be more nuanced and muted. Many parents opt for policies that cover only burial expenses and help lock in future insurability. Others may look to provide financial support for additional bereavement time. A typical child life insurance policy may have a death benefit between $10,000 and $50,000.

Tools and Resources for Evaluating Life Insurance Policies

In Conclusion

Determining if life insurance for your non-working partner or child is a personal decision that depends on a variety of factors that can be unique to your family’s specific situation, needs and preferences. For non-working partners, it is essential to evaluate their indirect financial contributions and consider how future expenses and savings might be impacted. For children, although the financial burden may not be as great, there might be financial reasons that make it necessary to provide the monetary and emotional support you need.