Advice from Nashville's Financial Guru Dave Ramsey
Dave Says
By Dave Ramsey
Author of Financial Peace and The Total Money Makeover
1/31/2005
"How much life insurance should children have?"
Dear Dave,
I’ve seen in your column where you write about life insurance, but I haven’t seen the issue of life insurance for children addressed. What do you recommend?
Tanya in Huntsville, AL
Dear Tanya,
I’ll start by telling you that life insurance is a lousy place to save money. It’s a horrible investment vehicle. So these whole life policies for children that suggest the cash value is a great college investment tool are a terrible deal. Stay away from life insurance as a college savings plan. In fact, stay away from whole life policies altogether.
Now, how much life insurance do you need on a child? Only enough to bury them and take care of a few miscellaneous expenses, should the unthinkable happen. The average funeral in America is somewhere in the $7,000 - $8,000 range, so I generally recommend about $15,000 in life insurance on a child. You can often just buy a $15,000 term insurance rider added to your term policy. That means their insurance “rides” on the back of your insurance policy for an extra $40 - $60 a year.
With adults, we take out large insurance policies to replace our income should something happen to us. Children don’t earn an income to support their family, so there is no need to take out the same size policy that covers mom or dad.
-Dave
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