Insurance Tip #5: Insurance for singles and children can be a smart buy

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

I know it sounds counter-intuitive.

Children don't earn income and singles typically have no dependents. Since the primary purpose of life insurance is to replace lost income, why would you insure the lives of children or singles?

Insurance on the lives of children is not generally necessary. But there are circumstances where it might be a good idea.

First, insurance at a young age is very inexpensive.

Second, by purchasing permanent insurance on a child (term insurance is generally not available until age 18), you are guaranteeing the child will always be insurable, regardless of any change in her medical condition.

Third, permanent insurance can be used as a vehicle for accumulating cash value. This can add up over time. More money would probably accrue in an appropriately diversified portfolio of low cost index funds. However, the mandatory nature of insurance, combined with its other benefits, makes it more likely that one day your child will awaken and find that she has a considerable nest egg.

Finally, under the right circumstances, a policy on a child could be structured in a way to permit a tax-free death benefit to future generations.
Many of the same considerations apply to purchasing insurance on singles. The protection of insurability is of particular value to this group.

If you are single and are fortunate enough to have a large disposable income, a blended policy (see tip #4) might be a prudent way for you to achieve significant cash value, coupled with a death benefit.

Singles and parents of children should consider these factors before making the decision that buying insurance is not in their best financial interest.

See 10 more insurance tips from Dan.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).

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