Considering life insurance for your kids

Should your kids have life insurance?

It's a no-brainer to have life insurance on yourself while raising a family. After all, you want your spouse and children to have money in case something should happen to you. But what about life insurance on your kids?

The argument -- or sales pitch -- for buying a policy on your kids goes something like this: This type of insurance is a good investment for college, will cover burial costs and is money that could be set aside for your child's future. Those low teaser rates (as low as $1 per month) can be tempting when you want to provide security for your child.

But there may be better ways to achieve these goals instead of life insurance for your children. Let's take each argument.

It's a good investment for college. So are 529 plans and education IRAs. Actually, these are better as investment options and they compound tax-free. Consider these more reliable vehicles to save money for college.

It will cover burial costs. The cost of a burial is expensive and can run into the thousands of dollars -- out of reach for many families. But the mortality rate for children is so low that it might not be worth even a small amount of money for this type of insurance. If you want to make sure that funeral costs are covered in case the unthinkable should happen to your child, consider adding a $5,000 rider to your own life insurance policy to cover this expense.

It's an investment for the future. Life insurance is designed to protect dependents from financial ruin should the breadwinner die.Unless you have a child star whose checks are paying the mortgage, life insurance is pointless in this sense. If you are taken in with the argument that you're buying life insurance that the child will keep for a lifetime, you would be better off putting that money in an investment vehicle that has better gains, such as a college 529 plan or Roth IRA. Better yet, beef up your own life insurance policy (and retirement plan), so your child is protected in case something should happen to you.

So is there any scenario to consider buying life insurance for your child? If there is a high risk that your child will have a health problem that might prohibit him or her from getting life insurance in the future, perhaps. But that's a stretch, and if you know the risk is there, an insurer will know it, too.

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