Is Life Insurance for Kids Necessary? Many Say `No'

FEW purchases are as grim to contemplate as life insurance for children. Despite that, it's a popular purchase in the United States - and an unnecessary one, some consumer advocates say.

``We always advise against it,'' says Jim Hunt, director, National Insurance Consumers Organization in Alexandria, Va. ``The expense is disproportionate to the need, which is usually none.''

Life insurance sales have declined every year from their peak in the mid-1980s, says the American Council of Life Insurance in Washington. But the business's size is still staggering. For 1992, Americans had 366 million policies worth $10.4 trillion, the ACLI says. Forty percent of US children were covered by a policy.

Robert Hunter, commissioner of the Texas Department of Insurance in Austin, says insurance should be bought to protect against the financial consequence of an untimely death. A child's death ``is an emotional catastrophe, not a financial catastrophe,'' he says.

Life insurance is worthwhile to protect a family against the loss of a breadwinner's income, Hunter says. ``If your son is [actor] Macaulay Culkin, you've got an income stream to protect.''

Children were covered by 17 percent of the 13.4 million ``ordinary'' life-insurance policies sold in 1992. ``There's clearly not that many Macaulay Culkins walking around,'' Hunter says. Ordinary life insurance is bought from an agent, while group policies are obtained through an employer. Almost all policies for children are ordinary life insurance.

One such policy is ``The Grow-Up Plan,'' offered by Gerber Life Insurance Company. The cash-value, whole-life policy offers from $5,000 to $15,000 in coverage. Gerber Life also sells products for adults. In fiscal 1994, it provided 8.5 percent of the $1.2 billion in sales of its parent company, baby-food giant Gerber Products Company of Fremont, Mich.

Ronald Masiero, Gerber Life president, says the company downplays the death benefit in favor of other features: The premium never rises, even though the death benefit doubles at age 21. The child is guaranteed the right to obtain additional coverage at standard rates at ages 21 and 28, even if something happens that would otherwise disqualify him. And the policy has a cash value that at age 21 at least equals the premiums paid.

``Why is getting my money back in 20 years a good deal?'' asks Hunter. ``You'd be better off buying a no-load mutual fund.''

Hunt adds that insurance for kids ``begins to be a rational purchase'' if an older person puts a large amount of money into a life-insurance policy that can serve as a tax-free vehicle for investing in the stock market. But such cases are rare, he explains.

``You could find higher yield for your money,'' Mr. Masiero agrees. But alternatives would not have an insurance and guaranteed insurability feature. ``If someone is just looking to build cash value, they wouldn't buy [The Grow-Up Plan].''

Although critical of life insurance for kids, neither Hunt nor Hunter says the product should be banned. Hunt says insurance is a discretionary purchase, and people are free to disregard his advice. Hunter says he expounds against it in hearings around Texas and on radio talk shows. ``We've tried [to inform people], but what are you going to do?'' he asks.