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Daniel T. Murray Blog: child

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Policies for children represent a small fraction of the life insurance market, but they made the news this week after a court hearing for a Georgia man accused of killing his young son by leaving him in a hot car.

Testimony and court documents revealed that Justin Ross Harris and his wife had two life insurance policies for 22-month-old Cooper Harris, one for $2,000 and one for $25,000.

Prosecutors have portrayed the 33-year-old Harris as an unhappy husband who was exchanging nude photos with several women. Defense attorneys say the death was a tragic accident. Harris remains in jail charged with murder and child cruelty.

The insurance policies were mentioned among numerous details from the evidence against Harris and weren't singled out by prosecutors in their arguments.

Still, the case has drawn attention to policies that families sometimes purchase for children. Here are five things to know about the children's life insurance market.

— HOW DO THE POLICIES FOR CHILDREN WORK? The policies are typically purchased by parents, grandparents or anyone directly related to the child, according to Steve Weisbart, chief economist for the Insurance Information Institute.

Premiums paid into the policies vary according to the terms. Generally, the higher the death benefit — what's paid out to beneficiaries if the insured person dies — the greater the premium. Insurers require that anyone buying the policy have an "insurable interest" in the person covered, meaning the buyer wants the person covered to actually live.

— INSURERS ATTACH CONDITIONS TO THE DEATH BENEFIT. Insurers require documentation of how a covered individual dies, and the policies will not pay out if the beneficiary is convicted of murdering the person covered.

— POLICIES CAN BE SAVINGS DEVICES. Life insurance policies typically have a cash value while the covered person is still living, with the amount based on premiums that have been paid over time. Often, a parent or grandparent buys a policy with the intention of giving the child the option later in life of using the policy as a cash source.

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If you're co-signing big student loans for your child, you may want to buy a life insurance policy while you're at it.

While no one wants to imagine the death of their child, taking out insurance on your son or daughter -- or asking them to purchase their own plan -- will protect you from being hit with mountains of debt should tragedy strike.

And the policies are pretty cheap. A basic plan with up to $250,000 in coverage can cost as little as $15 a month for a young, healthy college student or recent graduate. That's a whole lot less than the loan payments you could be stuck with -- which average more than $200 a month.

Such a move would have been life altering to Steve and Darnelle Mason, who lost their daughter Lisa five years ago.

Trying to pay back the $100,000 in private student loans they co-signed for their daughter has been a financial nightmare.

"I absolutely wish we had [a life insurance] policy," said Steve Mason. "We would not have struggled financially for the past four years with these private student loans, and our credit would not have been ruined."

Federal student loans are forgiven by the lender when a borrower dies, but private lenders aren't required to provide any such relief.

That's one reason it's important to get as much federal aid as possible before turning to private lenders. And for parents, it means not co-signing on a loan unless you have the means to repay it.

Another reason for caution: student loans can rarely be discharged in bankruptcy.

But for many parents, getting their child a good college education is non-negotiable -- and that's when life insurance can provide a little peace of mind, says Eleanor Blayney, a certified financial planner and consumer advocate for CFP Board.

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