I distinctly recall being given at the beginning of every elementary school year a brochure to take home to our parents offering insurance on our lives or in the event we experienced bodily injury.  It was always interesting to see how much you could get for a lost eye as opposed to a lost toe or disfigurement. My parents never ever bought insurance for me during my school years. But this was in a different time and place where peanut butter was freely eaten at lunch, there were no metal detectors at schools and no one thought twice about sending their kids on overnight trips.

With the world being, or seemingly being, a dangerous place, is life insurance an appropriate product for your child? According to a recent television commercial I watched, the answer should be yes; you never know when you need life insurance even for a child.

However, the general answer is no for two main reasons.

Firstly, statistically speaking, the child mortality rate is  low. According to the National Center for Health Statistics, there were 81,216,835 children between 0-19 years old living in the U.S.  in 2003. There were 53,539 child deaths that year or 65.9 deaths per 100,000 children. This is less than 1% of  children between 0-19. The leading cause of death in this age group was perinatal conditions (14,364 deaths) which the World Health Organization defines as deaths occurring under 5 years of age. In other words, if we assume 2003 was a typical year, the chances of an unfortunate and tragic death of a child are quite low and lower once a child survives past 5.

Thus, the probability of the risk of death for a child is low so paying an insurance premium to transfer risk of loss to an insurance company seems to be a waste of resources, considering there are more productive ways to spend money on a child.

Second, one of the primary reasons why people obtain life insurance is to mitigate against the financial consequences caused by the death of the insured. In the case of a minor, there generally is little to no lost income to be replaced. Obviously, there are funeral costs to consider if a child passes away but, given the low statistical chance this will happen, the financial risk of paying for a funeral is generally small enough to live without life insurance.

The exception to the general rule is if the child has a medical condition which is not severe but can affect their health (diabetes- to the extent diabetes can ever be thought to be minor- would be one example) or there is a genetic tendency towards certain type of disease in the family. In that case, assuming this is disclosed (to avoid a denial of claim based on pre-existing medical condition not disclosed), a term life insurance policy may be suitable in order to make it easier to obtain insurance later in life.

Having said that, one must weigh the cost of obtaining insurance with buying health insurance to supplement existing health care plans or investing in the child’s education. This type of balancing of priorities, obviously, involves contextual factors such as the medical condition at play, financial means, the number of children etc. etc.

The point being, if your child brings home a brochure offering life insurance after the first day of school, it may be an educational piece to read but perhaps not to act on.

No post tomorrow or Friday. I am on a mini-vacation. Enjoy the weekend.