Family Life Insurance: Do Children Get Covered For Free?

Life insurance for children is a topic that raises many questions for parents and guardians. While it is never a requirement to have life insurance for your children, it can be beneficial in certain circumstances. Child life insurance is generally offered in the form of term or whole life insurance and can provide coverage for the entirety of a child's life as long as the premiums are paid. Whole life insurance policies also build cash value over time, which can be useful for the policyholder. The cost of insuring a child will depend on their age, medical history, and other factors, and it's important to weigh the pros and cons before making a decision.

Pros and cons of family life insurance for children

Pros of Family Life Insurance for Children:

• Lower rates: Life insurance for children is much cheaper than for adults, and the younger the child, the lower the premium.
• Lifelong coverage: Whole life insurance policies guarantee future insurability, even if the child develops a medical condition later in life.
• Guaranteed insurability rider and additional riders: Depending on the policy, the child may be able to buy additional insurance for more financial protection when they are older, even with health issues.
• Final expenses: Life insurance can help grieving parents and family members with funeral costs and other expenses, allowing them to focus on healing.
• Cash value: Whole life insurance policies build cash value over time, which can be used to help with expenses such as college tuition.
• Easy to qualify: Life insurance for children often has simplified underwriting with no medical exam required.

Cons of Family Life Insurance for Children:

• Long-term commitment: Whole life insurance policies require premium payments for many years, and cancelling the policy or missing a payment can result in a loss of money.
• Lower rate of return: Whole life insurance policies may take over a decade to accumulate enough cash value to equal the amount paid in premiums, and other investments may yield higher returns.
• Financial trade-off: The money spent on life insurance premiums could be used for other child-related expenses or investments.
• Limited funds for other expenses: The additional cost of life insurance for children may not align with a family's priorities and needs.
• Healthy young adults may find similar coverage later: Healthy adults in their early 20s can usually find competitive life insurance rates, so it may be more cost-effective to wait until then to purchase a policy.

When does it make sense to get life insurance for children?

It is understandable that parents want their children to live long and healthy lives, so child life insurance may not feel like a priority. However, there are certain situations in which purchasing life insurance for your child could be a sensible decision.

Firstly, if your child is an actor, model, or social media star bringing in a substantial income, it may be a good idea to insure them. This would ensure that your family would be financially protected in the event of their death. Similarly, if your child is a teenager who works part-time and contributes to household expenses, their income may be something that your family relies on. In this case, taking out life insurance for them could be a way to safeguard your family's financial stability.

Another scenario in which child life insurance could be beneficial is if your child looks after their younger siblings, providing a type of childcare that you would otherwise have to pay for. If your child were to pass away, the insurance payout could be used to cover the cost of alternative childcare arrangements.

It is also worth considering purchasing life insurance for your child if your family has a history of genetic medical conditions. This would guarantee that your child will have coverage even if they develop a health condition later in life, as they may be denied coverage if they apply for insurance after being diagnosed with a medical condition.

Additionally, if you are concerned about your child taking up dangerous hobbies or activities as they get older, purchasing life insurance for them at a young age could be a sensible precaution. Certain hobbies, such as scuba diving, are considered high-risk by insurers, and your child may struggle to get insured if they take up one of these activities.

Finally, if you are a high-income parent, you may find the ability to transfer wealth to your children through a life insurance policy appealing. The cash value of a whole life insurance policy can be accessed at any time and may offer tax advantages.

However, it is important to remember that the chances of a child dying are very low, so funeral costs are not usually a good reason to purchase life insurance. Additionally, the coverage amounts for child life insurance policies tend to be low, so the policy may not provide sufficient coverage once your child becomes an adult.

Before purchasing life insurance for your child, it is recommended that you ensure you have adequate coverage for yourself and that you have addressed other financial priorities, such as building an emergency fund, saving for retirement, and paying off high-interest debt.

How much does life insurance for children cost?

The cost of life insurance for children depends on several factors, including the child's age, gender, coverage amount, policy type, health history, and the chosen insurance company. Here are some key points to consider:

• The younger the child, the cheaper the policy tends to be.
• The cost is also influenced by the payment schedule and policy payoff options. Stretching out the payment schedule over a longer period, such as through the child's age of 65 or 100, results in lower premiums.
• The insurance company Mutual of Omaha offers a range of children's life insurance plans with varying monthly costs based on coverage amounts and the child's age. For example, for a $10,000 coverage amount, the monthly cost is around $112 for males and $89 for females.
• Some companies, like Gerber Life Insurance, offer plans with coverage amounts starting at $5,000 and going up to $50,000. The coverage amount doubles when the child turns 18.
• Whole life insurance policies for children tend to be more expensive than term life insurance policies, but they offer lifelong coverage and a cash value component.
• The cost of insuring a child with a pre-existing health condition or disability may be higher and require additional underwriting requirements, such as providing medical records.
• It's important to compare quotes from different insurance companies, as rates and coverage options can vary.
• Before purchasing life insurance for a child, it's recommended to consult a financial advisor to determine if it aligns with your financial goals and priorities.

What are the benefits of life insurance for children?

While it may seem unnecessary to purchase life insurance for children, there are several benefits to doing so. Here are some of the advantages of buying life insurance for your child:

Guaranteed Future Insurability

The biggest advantage of buying life insurance for your child is that you're guaranteeing their insurability in the future, even if they develop a health condition. This is especially relevant if your family has a history of genetic medical conditions, as your child won't have to worry about being denied coverage later in life. Additionally, if your child takes up a dangerous hobby or career, they may struggle to get insured as an adult.

Locks in a Low Rate

You'll never get a lower rate on life insurance than when your child is a newborn. While you or your child will be paying premiums for a longer period, the amount paid over time can still be lower due to the initial low rates.

Provides Funds for Funeral Expenses and Other Costs

Although the chances of a child dying are very low, a life insurance policy will provide funds to cover final expenses and funeral costs. It could also allow the family to take time off work to grieve without the added financial stress.

Has Cash Value

A portion of the premiums paid for a whole life insurance policy goes towards building cash value. When you buy a policy for a child, a larger portion of the premium will go towards the cash value because the cost of insurance is low, and there's more time for the cash value to build. This cash value can be accessed for any reason, although withdrawing it may trigger a tax bill and reduce the death benefit.

Peace of Mind

While unlikely, if your child is an income earner, life insurance can provide peace of mind. This may be relevant if your child is an actor, model, social media star, or part-time worker who contributes to household expenses.

Protection for Their Future Family

Buying life insurance for your child can be an excellent way to set them up for success in the future when they may have their own family to financially protect.

Long-Term Protection

The cost of life insurance typically increases with age. Buying a children's life insurance policy lets you lock in protection with long-term payment plans, which can be beneficial if your child develops health issues later in life.

In summary, while there are valid arguments for and against purchasing life insurance for your children, it can be a good idea in certain circumstances, especially if you want to guarantee their future insurability and lock in low rates.

How does life insurance for children work?

Life insurance for children is typically purchased by a parent, guardian, or grandparent. It covers the life of a minor and is usually a whole life insurance policy, which means it provides coverage for the child's entire life as long as the premiums are paid. The policyholder can also be the beneficiary who receives a payout if the insured child dies.

Guaranteed Insurability:

Child life insurance policies often include a guaranteed purchase option, allowing the child to buy additional coverage without a medical exam. This is useful if the child develops a chronic health condition or chooses a risky career, as they may have difficulty obtaining affordable life insurance later in life.

Savings Vehicle for the Child:

The cash value component of whole life insurance policies allows the policyholder to withdraw or borrow against the accumulated cash value. The child can access these funds when they reach adulthood. However, it's important to note that the cash value growth in life insurance policies is typically slow compared to other investment options.

Coverage in the Event of Death:

Child life insurance policies provide a lump-sum payout in the unfortunate event of the child's death, as long as the premiums are paid. This can help cover burial costs, grief counseling, or other expenses during a difficult time.

Limited Coverage Amounts:

Coverage amounts for child life insurance policies tend to be low, often under $50,000. This may not be sufficient for an adult with a family to support. Therefore, the child may need to purchase additional coverage later in life.

Alternative Options:

Instead of a separate child life insurance policy, parents can add a "children's term life insurance" rider to their own life insurance policy. This rider provides coverage for the child at a lower cost, but it typically ends if the parent dies first. It may be possible to convert the rider to a permanent policy for the child once they reach a certain age.

In summary, life insurance for children can provide peace of mind and financial protection in the event of a child's death. However, it's important to consider the low coverage amounts and alternative options, such as adding a rider to an existing policy, before purchasing a separate child life insurance policy.

Frequently asked questions