Child Life Insurance: Rollover Options For Parents

Child life insurance is a permanent life insurance policy that provides a fixed death benefit to the beneficiary if the insured child dies while covered. It can be purchased as a standalone whole life policy for the child or as a rider to a parent or guardian's life insurance policy. Coverage is usually low, often under $50,000, and premiums are locked in, meaning they won't increase. Child life insurance policies typically include or offer a guaranteed purchase option, which means the child can buy additional coverage without a life insurance medical exam. This can be useful if the child develops a health condition or chooses a risky career. The policy can also be used as a long-term savings mechanism as it includes a cash value component that grows over time.

Pros and cons of child life insurance

Pros

• Guarantees future insurability: Child life insurance policies typically include or offer a guaranteed purchase option, meaning the child can buy additional coverage without a medical exam. This can be useful if the child develops a chronic health condition or chooses a risky career.
• Acts as a savings vehicle for your child: Money can be withdrawn or borrowed from the cash value account, which grows tax-deferred. When the child reaches adulthood, they can surrender the policy and receive the funds in full.
• Covers costs in the worst-case scenario: Child life insurance policies pay out a lump sum in the event of the child's death, which can be used for expenses like burial costs or grief counselling.

Cons

• Low rate of return: Whole life insurance policies build cash value at a low rate of return compared to other investment options.
• Long-term commitment: Whole life insurance policies require paying premiums for many years. If money gets tight and you miss a payment or cancel the policy, you will have paid all that money for nothing.
• Money could be used for other things: Raising children is expensive, and the additional cost of child life insurance may not be in every family's interest.
• Healthy young adults can find similar coverage: Since healthy adults in their early 20s are likely to secure competitive life insurance rates, it may be cheaper to wait to purchase coverage on their behalf.

Child life insurance rates

• Age of the Child: The younger the child, the lower the insurance rate. Insurers typically offer coverage for children from 14 days to 17 years old, with rates increasing as the child gets older.
• Coverage Amount: The larger the death benefit, the higher the premium. Coverage amounts for child life insurance are usually lower than those for adults, typically ranging from $5,000 to $50,000.
• Payment Schedule: Insurers may offer the option to pay premiums over a longer period, such as until the child reaches 65 or 100 years old. Stretching out the payment schedule results in lower monthly premiums.
• Policy Payoff: Some insurers offer the option to pay off the policy within a set number of years, such as 10 or 20 years. Choosing a shorter payment period will increase the premium.
• Type of Policy: Child life insurance policies are typically whole life insurance policies, which provide coverage for the child's lifetime as long as premiums are paid. Term life insurance policies for children are also available but less common.
• Insurer: Different insurance companies will have varying rates for child life insurance. It is important to shop around and compare quotes from multiple insurers to find the best rate.
• According to Covr Financial Technologies, the average annual premium for a $25,000 policy on a newborn is $166.
• For a Gerber Life Grow-Up Plan, the coverage amount doubles when the child turns 18, with premiums starting at around $3 to $5 per week for $10,000 of coverage.
• Protective, a highly-rated insurer, offers a children's term rider with up to $25,000 in coverage for $5 to $10 per month.
• Nationwide, another top-rated insurer, offers whole or universal life insurance for children, but the pricing may be higher compared to other providers.

When to get child life insurance

Child life insurance is a permanent life insurance policy that provides a fixed death benefit to the beneficiary if the insured child dies while covered. It can also be used as a long-term savings mechanism, as the policy typically includes a cash value component that grows over time.

Future Insurability

One of the main advantages of child life insurance is that it guarantees future insurability for your child. If your child develops a health condition later in life, they may struggle to get life insurance as an adult. Child life insurance policies typically include or offer a guaranteed purchase option, which means your child can buy additional coverage without a medical exam, regardless of their health. This is especially useful if your family has a history of genetic medical conditions.

Locking in Lower Premiums

The younger the insured person, the cheaper the premiums will be. By purchasing child life insurance, you can lock in these low rates for your child's lifetime, as long as the premiums are paid regularly. This is a good option if you want to secure lower premiums for your child's future.

Savings for the Future

Whole life insurance policies for children contain a savings component called the cash value. This cash value grows over time, usually at a fixed rate, and can be borrowed against or paid out if the policy is surrendered. This can be a good way to save for your child's future expenses, such as college education or a down payment on their first home.

Family Medical History

If you have a family history of medical conditions that are likely to develop as your child gets older, child life insurance can be a good idea. It guarantees coverage for your child at the best rates, and you won't have to worry about them being denied coverage due to pre-existing conditions.

Financial Priorities

Before purchasing child life insurance, it's important to consider your financial priorities and budget. Make sure you have enough coverage for yourself and your family, and that you've tackled other financial goals, such as building an emergency fund, saving for retirement, and paying off high-interest debt.

In summary, child life insurance can be a good option if you want to guarantee your child's future insurability, lock in lower premiums, or save for their future expenses. However, it's important to weigh this against other financial priorities and consider the likelihood of your child needing life insurance coverage as an adult.

How to buy child life insurance

Child life insurance covers the life of a minor and is typically purchased by a parent, guardian, or grandparent. It is a permanent life insurance policy that provides a fixed death benefit to the beneficiary if the insured child dies while covered. It can also be used as a long-term savings mechanism, as the policy typically includes a cash value component that grows over time.

There are two ways to buy life insurance for a child:

• Buy a separate life insurance policy specifically for the child: This is usually a whole life policy, which provides coverage for the child's entire life as long as the premiums are paid. Coverage amounts tend to be low, often under $50,000, and premiums are locked in, meaning they won't increase. The policy owner can be the beneficiary who receives a payout if the insured child dies.
• Add a "children's term life insurance" rider to the parent's or guardian's policy: This rider pays out if the child passes away, but the coverage ends if the parent dies first. The rider's coverage usually lasts until the child reaches adulthood, at which point it can be converted into a permanent policy.

Buying a separate life insurance policy for a child:

To buy a separate life insurance policy for a child, you can contact insurers directly, either online or by phone, or through a licensed agent. Some companies offer quotes and applications online, which is generally a quick and easy process. Here are the steps to follow:

• Find insurers that offer child life insurance policies: Not all insurance companies offer child life insurance policies, so you'll need to research and find those that do. Examples include Aflac, American Family, Foresters, Gerber Life, Globe Life, and Mutual of Omaha.
• Compare policies and prices: Get quotes from multiple insurers and compare the coverage amounts, premiums, and other features to find the best policy for your needs. Consider the long-term value of the policy, not just the cost.
• Fill out an application: You'll need to provide the child's full name, date of birth, and Social Security number. There may be a few health-related questions, but your child typically won't need to take a life insurance medical exam.
• Pay the premiums: Once the policy is in place, remember to pay the premiums on time to keep the coverage active.

Adding a "children's term life insurance" rider to your own policy:

If you already have life insurance or are planning to get it, you can add a child term rider to your policy. Here's how:

• Find an insurer that offers child term riders: Not all insurers offer this option, so you'll need to find one that does. Examples include Protective, Nationwide, Mutual of Omaha, Penn Mutual, and State Farm.
• Choose the right type of policy for your needs: You can usually add a child term rider to an adult term, whole life, or universal life policy. Consider the coverage amounts, premiums, and conversion options to find the best fit for your family.
• Add the rider to your policy: Contact the insurer or your insurance agent to add the child term rider to your policy. Provide the necessary information about your child, and make sure you understand the terms and conditions of the rider.
• Pay the additional premiums: The child term rider will increase your overall insurance premiums. Make sure you pay the premiums on time to keep both your policy and the rider active.

Child life insurance companies

Child life insurance is a permanent life insurance policy that provides a fixed death benefit to the beneficiary if the insured child dies while covered. It can also be used as a long-term savings mechanism, as the policy typically includes a cash value component that grows over time.

There are two ways to buy life insurance for a child:

• Buy a separate life insurance policy specifically on the child.
• When a parent buys life insurance, they can add a "children's term life insurance" rider. This rider pays out if the child passes away, but the rider's coverage ends if the parent dies first.

Protective

Protective is the best overall life insurer for children. It offers a wide array of options for children's coverage and has the highest term conversion limits for children. It also offers the most affordable term policies of the companies reviewed by Investopedia. Protective has an A+ (Superior) financial strength rating from AM Best.

Nationwide

Nationwide is the best for customer satisfaction. It receives high marks for customer satisfaction and financial stability and offers a variety of options for children's life insurance. The insurer has had far fewer complaints than expected over the last three years and also ranks second out of 22 insurers in the J.D. Power 2023 U.S. Individual Life Insurance Study.

Mutual of Omaha

Mutual of Omaha is the best for living benefits. It offers a variety of riders, including uncommon ones such as a disability income rider and a return of premium option for term coverage. Most policies have at least two living benefits, and Express Term and Express IUL policies have three—for terminal, critical, and chronic illnesses.

Penn Mutual

Penn Mutual is the best for most policy types. It offers the most options for permanent coverage for children, including universal life, variable universal life, indexed universal life, whole life, and one-year term policies. The one-year term policy is convertible to a permanent policy, so it's a good option for temporary needs or if you can't currently afford the premium for permanent coverage.

State Farm Life Insurance

State Farm Life Insurance is the best for financial stability. While all of the top picks have superior financial strength ratings, State Farm takes the highest possible grade from AM Best with an A++ (Superior) rating. The company also ranks first in the J.D. Power 2023 U.S. Individual Life Insurance Study.

Mutual of Omaha

Mutual of Omaha is the best for a standalone policy. It offers children's whole life insurance policies with as few as three health questions and up to $50,000 of coverage. Its whole life insurance policies for children offer the opportunity to add more coverage at certain milestones later in life. Mutual of Omaha is highly rated for financial strength and customer satisfaction, with an A+ rating from A.M. Best and 801 out of 1,000 from JD Power.

American Family

American Family is the best for coverage options. It offers high coverage limits on children's whole life insurance policies that can be paid in 10 or 20 years. Policies can grow with children as they hit certain life milestones like marriage or buying a home. American Family's DreamSecure Children's Whole Life policies can include $25,000, $50,000, or $75,000 of coverage paid in either 10-year or 20-year payment plans.

Foresters Financial

Foresters Financial is the best for riders. Its BrightFuture Whole Life Insurance is designed for children up to age 18 and offers two choices for payments. Its children's policy has several included riders and features that could be useful, including coverage for health expenses after a natural disaster and accelerated benefits. Foresters offers a number of riders with no additional premium, including riders for accelerated death benefits for terminal illnesses and for covering family health expenses from a natural disaster.

Aflac

Aflac is the best for children's term life insurance. It is one of the few companies that offer term life insurance for children. Both Aflac's juvenile term and whole life insurance policies can guarantee future insurability. With both types of coverage, the child is able to convert the policy to a permanent life insurance policy with up to double the coverage.

Frequently asked questions