Children's insurance

5 Reason why level life insurance for teens is a genius idea

By Bryan Tucker posted February 8 2019

Let's get one thing straight. No child needs life insurance.

However, some excellent reasons why making the tactical decision to buy life insurance for the kids is a smart move that can secure their life insurance needs for life.

When can't you buy life insurance for children under 10?

Thanks to people like Winton woman Minnie Dean, New Zealand law doesn't allow a child under the age of 10 to be covered with a life insurance policy. The risk of harm to a vulnerable child is too significant if an unscrupulous parent or carer could receive a sizeable financial windfall on a child's death in their care.

For children under ten this leaves trauma cover, which pays a lump sum if they suffer a major health crisis but nothing on the child's death.

Why buy level life insurance on teenagers?

Level life insurance is an option available from most insurers. It allows a person to put in place a policy with a premium that never changes or might change a little each year as the cover is increased for inflation. The term of the level premium could be a few years or for life.

Here are five reasons why getting level life insurance while young is a genius idea:

1. While they don't need the cover now, they will likely need it in later life as they move into adulthood. Getting the cover early means that there are less likely to be health issues that make applying for cover more difficult.

2. Having a life insurance policy in place when your teenager heads away for the big OE will be one less worry. Getting the cover while they are overseas is difficult. Life insurance, once in place, covers them worldwide.

3. Changes in their circumstances, like starting smoking or taking up a risky profession, won't affect them as they will already have cover.

4. Choosing a level premium option means that cover that can be held for life will always be charged a flat premium that never changes. Imagine being 85 years old with a large inflation-adjusted insurance policy costing the premiums of a 16-year-old.

5. Even though life insurance normally has no cash value if it is cancelled by the policy owner a level life policy would become an asset that could be traded for cash in later life. What would you pay a 90-year-old if they agreed to make you the recipient of their $1,900,000 life policy costing $70 per month to keep in place?
 

Insurance for children

New Zealand Insurers won’t usually consider an application for life cover on a child under age 16.

What I did for my teenage children

When my kids reached aged 16, I placed a level premium life policy for $500,000 with an automatic annual increase to the cover of 2.5% compounding. The premium at that young age worked out at $70 per month, and the 2.5% increase applied right through to age 70. After that, the cover remains level for life and pays out on death.

My children are now adults and have since taken overpayments for their policies. In their late 20’s they have nearly $700,000 of cover with a premium that is still $70 per month. When they reach age 70, they will have $1.9 million of life cover, costing $70 per month. The total premiums paid between the age of 16 and 70 are just $45,360.

They could very likely go through life without the need to buy any more life insurance.

This may not be an option for everyone, but if you can afford it you will make a massive difference to your child’s financial future.

Pay super cheap insurance premiums when I'm older