Juvenile Life Insurance: Payouts For Minors?

Juvenile life insurance is a permanent life insurance policy purchased for a minor (generally under 18) by a parent, grandparent, or guardian. It is a financial planning tool that provides a tax-advantaged savings vehicle with the potential for a lifetime of benefits. While the likelihood of a child's death is low, juvenile life insurance can be used to pay for final expenses in the tragic event of a child's death. More importantly, it establishes a life insurance policy that can grow and accrue cash value for the child into adulthood. Juvenile life insurance can also be used to protect against the sudden and unexpected costs of a funeral and burial.

Juvenile life insurance as a financial planning tool

Juvenile life insurance is permanent life insurance that insures the life of a child, generally under the age of 18. It is a financial planning tool that provides a tax-advantaged savings vehicle with the potential for a lifetime of benefits.

Benefits of Juvenile Life Insurance

Juvenile life insurance has become a popular tool for college savings, lifetime savings, investment, and estate planning. Here are some of the key benefits:

• Buildup of tax-deferred cash value inside the insurance policy.
• Flexible access to cash value: Cash can be withdrawn or received as a loan at any time without a credit check or lender approval.
• Face value is received free of income tax.
• In most states, the cash value is protected from creditors and lawsuits.
• Can be funded using gift tax or generation-skipping tax exclusion amounts.
• Locked-in rates: The cost of the policy stays the same throughout the child's life.
• Cash value component: This can supplement retirement income or become part of the child's financial portfolio.

Types of Juvenile Life Insurance Policies

There are a few different policy options to consider for children:

• Whole life insurance: Provides coverage for life as long as premiums are paid, with locked-in rates. It also offers a guaranteed cash value component.
• Universal life insurance: Offers lifelong coverage and cash value growth at a minimum interest rate, with more flexibility in premium payments.
• Variable universal life insurance: Similar to universal life insurance but with cash value growth tied to market performance.

Criticisms of Juvenile Life Insurance

Critics argue that juvenile life insurance is unnecessary due to the low likelihood of child mortality, and that insurance premiums could be used for other purposes. They also claim that investing in stocks, bonds, or mutual funds can provide higher returns with lower fees. However, proponents of juvenile life insurance point out that a well-structured policy can maximize cash value growth, providing a savings vehicle with a lifetime of benefits.

Whole Juvenile Life Insurance

Juvenile life insurance is permanent life insurance that covers the life of a child, typically under the age of 18. Whole Juvenile Life Insurance is a type of permanent whole life insurance that guarantees a minimum interest rate and includes a non-guaranteed dividend declared annually by the insurance company. This type of insurance can be a useful financial planning tool and offers several benefits for parents and children.

One of the key advantages of Whole Juvenile Life Insurance is that it ensures your child can have life insurance coverage in adulthood at lower rates. Adults with chronic health conditions or risky careers may struggle to obtain affordable life insurance. However, with a Whole Juvenile Life Insurance policy, coverage cannot be revoked, and premiums cannot increase, even if the insured individual develops a health condition or enters a risky profession later in life. This type of policy provides guaranteed future insurability, which can be beneficial if your child has a serious medical condition or if your family has a history of medical issues.

Additionally, Whole Juvenile Life Insurance policies have locked-in rates that remain the same throughout the child's life. The policy cost is determined based on the child's age, gender, and risk classification, and these rates are locked in for life, providing long-term financial predictability. This can be especially advantageous if the child develops health issues later in life, as they will not have to worry about increasing insurance costs.

When considering Whole Juvenile Life Insurance, it is important to weigh the pros and cons. Some potential disadvantages include the long-term expense of lifelong premium payments and the possibility of poor rates of return due to lower mortality rates among children. However, the peace of mind and financial security that this type of insurance provides can be invaluable for parents.

Indexed Juvenile Life Insurance

There are two plan design options: Option A offers a level death benefit and builds cash value, while Option B offers a death benefit that increases as the policy cash value increases. Juvenile premiums can vary in range and can be customized to fit almost any family's budget and planning needs. The cash value in an insurance policy is tax-deferred, creating a lifetime savings opportunity.

The global market for Indexed Juvenile Life Insurance is on an upward trajectory, with projections indicating substantial growth from $20.43 billion in 2022 to $23.37 billion in 2023, boasting a Compound Annual Growth Rate (CAGR) of 14.4%. The market is expected to reach $38.71 billion by 2027, maintaining an impressive CAGR of 13.5%. This growth is driven by the increasing younger population seeking comprehensive coverage.

Who can purchase a policy?

Juvenile life insurance is typically purchased by a parent, grandparent, or guardian for a minor child (under the age of 18). In some states, the upper age limit for purchasing a juvenile life insurance policy is 16.

A grandparent is eligible to purchase a policy for a grandchild with fewer limits than a parent. Most insurance carriers require that a parent has a life insurance policy in place prior to purchasing a policy for a child. However, a policy purchased for a child can have a face value of up to half that of the parent's policy (up to a quarter in New York).

The first step in purchasing juvenile life insurance is to complete an application on the child's behalf. If the child is a minor, the policy will be owned by the purchasing adult until the child reaches the age of majority (18 or 21, depending on the jurisdiction).

The application will require a review of the child's medical history to determine the risk classification and whether the application is acceptable. Once the application has been reviewed, the insurer will approve or deny the request to purchase coverage.

What are the benefits?

Juvenile life insurance is a permanent life insurance policy purchased for a minor (usually under 18) by a parent, grandparent or guardian. While the idea of insuring a child's life may seem unnecessary or even morbid, there are several benefits to taking out this type of policy.

Firstly, it guarantees future insurability. If a child develops certain conditions, they may be denied life insurance coverage later in life. By purchasing juvenile life insurance, parents can ensure that their child will have some form of life insurance coverage, regardless of their health in adulthood. This is particularly important if the child develops a chronic illness or enters a risky profession, as their coverage cannot be revoked and premiums will not increase.

Secondly, juvenile life insurance policies lock in childhood rates for life. Life insurance premiums are typically based on a person's age when they sign up, and they increase with age. By taking out a juvenile life insurance policy, parents can secure a lower premium for their child's entire life, making the policy more affordable in the long run.

Thirdly, these policies offer a cash value component. A portion of the premium is set aside each month, accumulating over time and developing into a nest egg that can be borrowed against tax-free in adulthood. This can be used to supplement retirement income, pay off debt, or buy a house.

Finally, juvenile life insurance can provide financial protection in the tragic case of a child's death. While rare, the death of a child can cause significant financial hardship for a family, and life insurance can help cover final expenses, medical bills, and time off work to grieve.

Frequently asked questions