CAROLINA CRISIS: THIS IS BIGGER THAN YOU By Michael...
Reaching Out To ‘Iron Mike’
I also fear what might happen if I were to suddenly pass on myself. While the pain of death is severe and complicated, there is always a lesson to be learned from the experiences of others.
In this case, there is the serious and gut-wrenching task of planning for the possibility that you may have to bury your child. In the black community, such issues are compounded by the alarming death rates of black teens in the inner city, higher infant mortality rates and reduced access to health care for African Americans.
In light of our unique experiences and circumstances, we must be careful and intelligent in our financial planning. How do you plan for your child’s death? Is life insurance even necessary? Let’s break it down and figure it out together.
Please swallow a big grain of salt as I share my perspectives with you, for opinions vary widely regarding whether or not it is necessary to buy life insurance for children.
As a finance professor, I teach my students that the type and amount of life insurance you purchase for your children are functions of how well you save and your access to financial resources. The goal of life insurance is to provide funding to those you leave behind to cover expenses that result from your death.
So, a father needs life insurance to make sure that his income is replaced, that his children can go to college, etc. But even a corporation may purchase life insurance to protect the firm’s assets in the event of the CEO’s death.
In the case of children, the issue becomes a bit more complicated. When a child dies, there is usually no lost income, but there are certainly going to be expenses.
There is the cost of the funeral, as well as any debts that have been incurred during a prolonged period of illness. If you are not prepared for these costs, you may have serious problems.
According to the American Council on Life Insurance, only 15% of all children have life insurance coverage. I would argue that this number is too low, especially in the black community, where families tend to have a smaller cushion of wealth to deal with the expense of a child’s death.
Due to the fact that mortality rates for children are far lower than those for adults, the cost of life insurance is also lower, making this an affordable investment.
Those of you who know the Dr. Boyce approach to learning already realize that I am not here to tell you what to think. I only want to encourage you to make sure you think carefully. Here are some quick ‘Dr Boyce Money’ notes on whether or not you might want to get life insurance for your children:
Funerals are not cheap
According to the National Association of Funeral Directors, the average cost of a funeral is $6,500. But this cost can easily rise to $10,000 after including the burial plot, flowers and other unexpected costs. The last thing you need after enduring the loss of a child is to experience financial trauma as well.
Don’t get insurance on your children without being fully insured yourself
While life insurance on your child can be an important part of your personal financial plan, it is certainly not more important than being fully insured yourself. The financial hardship due to the loss of a child is not nearly as great as the challenges your children are going to experience in the event that you are no longer roaming the earth.
Some believe life insurance can be a vehicle for wealth building
I am not one of these people. While Whole Life insurance policies offer a savings component that grows through time, there are more efficient ways yto save money and build wealth for your children.
You’d probably be better off purchasing a 20-year, Term Life insurance policy with the option to upgrade to a higher amount or convert to Whole Life. For many of these policies, your child can renew it himself/herself at a higher level of coverage without any additional medical testing.
Your child may not be insurable as an adult
While the probability is low that your child will have a difficult time obtaining life insurance as an adult, there are some who argue that getting locked into a long-term policy when the child is young may be a way to prevent that. I am not convinced that this should be the sole reason for getting life insurance policies on your children. But if the concern is overwhelming to you, or you have a history of serious medical problems in your family, you may want to consider this option.
If you are not a good saver
As I mentioned earlier, the cost of a funeral and medical expenses after the death of a child can drive you and your family into bankruptcy. If you are not financially prepared to endure the economic hurdles of your child’s death (God forbid), you may want to consider obtaining a small life insurance policy on each of your kids. Sometimes, you can have the policy added onto your own life insurance. Just ask your insurer for more information.
Planning for death is difficult, since it doesn’t seem that we are ever going to die. Planning for a child’s death is even more difficult, because children are not supposed to die.
At only four years old, little Exodus Tyson left this world entirely too early, but she also left us with opportunities for additional understanding. There is always a lesson to be learned in the midst of God’s plan, even if it doesn’t make sense.