Life insurance coverage on children

By Brent D. Gardner, CLU, ChFC

Life Solutions, Inc.


This is where one realizes how important life insurance is, even on young children who do not produce income. All those pundits and naysayers who preach from on high about how selling life insurance on children should be criminal and that the agents who sell those policies are crooked know not what they speak of.

If you search the Internet for articles on the topic of life insurance on children, you will find all sorts of differing opinions. Many of these opinions are negative, and quite a few outright attack life insurance agents for selling life insurance that covers children.

There is one thing all these negative articles have in common: Not a single one is based on the real life experience of delivering a claim check when a child dies unexpectedly.

When I was a new life insurance agent, I was like most new agents. I was gung ho about selling as much as I could to as many people as I could because I wanted those commissions. I wanted to win sales awards and go on company trips.

Every application I submitted was one step towards my own financial goals. I was taught many financial facts to regurgitate in sales presentations, how to use fancy financial planning projection software and how to negotiate with prospects so they would buy from me. One thing I was not taught was how to handle a death claim.

Some agents are in this business many years before they deliver their first death claim on a policy they sold. I had the misfortune of delivering my first death claim on a policy I sold during my first year as an agent.

I had been assigned to service what we call an orphan policy owner. This is a policy where the writing or servicing agent is no longer working with the company. I called on this lady to introduce myself, and review her coverages. During our review, I discovered that four of her children had policies, but the youngest did not.

The four existing policies were all different face amounts. After a brief discussion, the mother decided to add a policy on her youngest child, and upgrade the other four, so that all five would have an equal amount. This was important to her, and as a new agent, I did not argue.

I sold her what she wanted, even though I recommended that she increase her own coverage first. My new client was divorced from the father of her five children, but had recently remarried. She wanted coverage on her new husband, but he refused to even sit down at the table. At one point, he muttered some negative words about insurance agents that I cannot repeat in good company.

As I left their home with five new insurance applications in my briefcase, my client said she would work on her husband's bad attitude and call me later to schedule another meeting to get him insured.
All five new policies were approved as applied for, and I delivered them to my new client. One morning six months later, our receptionist’s voice came over the intercom to tell me I had a call. She told me it was the nice lady I had sold five policies to six months ago.

I remembered our last conversation, so my first thought was, “She must have good news about her husband.”

Here I was, 22 years of age, already counting the commissions on the policy I would surely sell to my client's husband. These are the kinds of calls that every agent wishes for; clients wanting to buy more insurance. I was stoked.

I quickly picked up the phone, and asked me client how her day was going. Her first statement to me was, “I need a claim form.” As the word form came over the telephone, her voice broke, and she began to cry. I had no idea what to say or what to do.

I mumbled something like “I'm so sorry” and followed with “Let me get you the forms you need. I'll send them out in the mail today.”

I was not prepared for this. Nobody had taught me what to expect, what to say or how to handle a claim. Knowing what I know now, this is the very first subject I address with new agents I train, because having experienced the life insurance business full-circle during my first year, I fully understand and appreciate the real value of financial security in the form of tax-free dollars when they are needed most.

My client's daughter had died in a hunting accident. Her stepbrother had stumbled, dropped his rifle, causing it to discharge, hitting the twelve-year old girl in the heart. She died instantly.

This is where one realizes how important life insurance is, even on young children who do not produce income. All those pundits and naysayers who preach from on high about how selling life insurance on children should be criminal and that the agents who sell those policies are crooked know not what they speak of.

From my perspective, these self-anointed gurus, like Dave Ramsey, are all charlatans.

"Insuring children is a total waste of money. Buy them a savings bond instead."
- Jane Bryant Quinn

I'd like to see Jane defend this statement face to face with my client. One of the lessons I learned over the next week after that phone call were eye opening. For example, I did not know that an ambulance ride to a hospital is not covered by health insurance when the passenger was deceased before they were picked up. The bill for the ambulance ride was nearly $2,000.

Emergency room visits aren't covered, either, when the insured is already dead. That bill was another $1,000.
Grieving parents behave differently than grieving adult offspring. For example, Grandpa can spell out in his last will and testament that he wants a simple funeral, or that Grandma wants to be cremated. Their wishes will be carried out, keeping the costs somewhat under control.

On the other hand, a grieving parent will build a monument to what could have been, and nobody can fault them for it. The funeral and burial in this situation was significantly above the national average — over $10,000. For those who are curious, before I sold the new policies six months earlier, there wasn't enough coverage to pay for a funeral that was below the national average.

Grieving parents often need time off. The grieving process takes more time for some than it does for others, but in my experience, parents who lose children need more time than one can possibly predict using any rules of thumb, financial formula or employee handbook at their place of employment.

Time off costs money, in the form of lost wages or salary. Neither the Fair Labor Standards Act and Family Medical Leave Act require an employer to pay wages or salary for time not worked when a worker is off to attend a funeral of a child or to grieve. After all my client's bills were paid, the total cost of her child leaving this world topped $15,000, not including the lost income from taking some time away from work to recover from their loss.

If not for the upgraded coverage, there would have been a cash shortage. This family did not have the discretionary dollars to pay for all the bills when they came due, if not for the insurance I had sold to them.

There were some funds left over after all the bills had been paid, and the mother did not want to keep the money. She went to her bank trust department and established a scholarship fund for her daughter’s classmates so that they would one day remember their long lost friend. If I had not sold the insurance, there wouldn't have been a scholarship fund.

This is one of those little things I recall every year end when I'm planning for the new year: I remember why I do what I do, why I keep doing it when I could choose an easier path in life.

Selling life insurance isn't easy. Prospecting for new clients is even tougher, especially today when the federal government has done everything within its power to prevent life insurance agents from getting in contact with prospective clients using the most efficient tool we have – the telephone.

I still get up every day and make those sales calls, talking to people who don't want to think about the unthinkable, asking them to sacrifice a little today for greater financial security tomorrow. When I read those articles that deride what I do, I remember the 12-year-old girl that I delivered the death claim on during my first year in the business. I remember the difference that insurance made in that family's life. I remember that I'm building monuments to what will be, with every policy I sell.

Takeaway points
  • Nobody knows this is his or her last day.

  • Life insurance is the lowest cost method of transferring the risk of final expenses.

  • Grieving parents need more money than one can predict using any financial formula.

  • A small policy is better than nothing, but it might not be enough.

  • Insurance on children does, in point of fact, replace lost income when a parent grieves.
Have you addressed this need on your clients who have children? Your comments below are appreciated.

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