Life Insurance For Children: When To Keep Or Cancel

Life insurance for children is typically purchased by parents or guardians as a safety net in the unfortunate event of their child's passing. These policies can be term-based, lasting until the child becomes an adult, or permanent, which would allow the child access to coverage for their entire life at a lower rate. While the former is more popular due to its affordability, the latter is a good option if parents want to ensure their child and their future family have coverage in adulthood.

Pros and cons of life insurance for children

Pros

• Lower rates: Life insurance premiums are typically cheaper for children, and these rates can be locked in for the duration of the policy.
• Lifelong coverage: Whole life insurance policies guarantee future insurability, even if the child develops a medical condition later in life.
• Guaranteed insurability: The child will be able to qualify for additional life insurance coverage later in life.
• Final expenses: In the unfortunate event of a child's death, life insurance can help cover funeral costs and other expenses, allowing grieving parents to focus on their healing.
• Accumulated cash value: Whole life insurance policies can accumulate cash value over time, which the child can access for expenses like college tuition.
• Easy to qualify: Life insurance for children often does not require a medical exam, making it easier to qualify for coverage.

Cons

• Long-term commitment: Whole life insurance policies require paying premiums for decades. If the policy is cancelled or payments are missed, the money invested may be lost.
• Lower rate of return: Whole life insurance policies may take 15 years or more to accumulate cash value equal to the premiums paid. Other investments, such as a 529 college savings plan, may offer higher returns over the same period.
• Financial trade-off: The money spent on life insurance premiums for a child could be used for other essential expenses or investments.
• Low coverage amounts: Some insurers limit the coverage amount for children's life insurance policies, which may not be sufficient for an adult with a family to support.

Life insurance for children vs child insurance rider

Life insurance for children and child insurance riders are two different ways to ensure your child's financial security in the future. Here's a detailed comparison between the two:

Life Insurance for Children

Life insurance for children is a standalone policy that provides coverage for the child's entire life, as long as the premiums are paid. This type of insurance offers lifetime coverage, usually ranging from $5,000 to $50,000, depending on the provider. It can be an excellent option for parents who want to ensure their child's future insurability, especially if they have specific health conditions or family history that may impact their ability to obtain insurance later in life. The cost of adding life insurance for children can be higher than that of a child rider, and separate policies and premiums are required for each child.

Child Insurance Rider

On the other hand, a child insurance rider, also known as a child term rider, is an add-on to the parent's or guardian's existing life insurance policy. It provides coverage for the child until they reach a specified age, typically between 18 and 25. The rider covers biological children, stepchildren, and legally adopted children, and any children born or adopted after the rider is added are also automatically included. The coverage amount varies, usually ranging from $1,000 to $100,000, depending on the insurer. One of the significant benefits of a child rider is its affordability. It offers a cost-effective way to provide life insurance for multiple children with a single rider and a flat fee. Additionally, child riders often allow for conversion to a permanent life insurance policy for the child when they reach a certain age, without the need for medical underwriting. However, the rider is tied to the parent's policy, so if that expires, the child's coverage will also end.

Key Differences:

| Life Insurance for Children | Child Insurance Rider |

|---|---|

| Offers lifetime coverage. | Provides coverage until the child reaches a specified age. |

| Requires separate policies and premiums for each child. | Covers multiple children under a single rider and premium. |

| May have higher premiums. | Is generally more affordable. |

| Provides coverage regardless of future health conditions. | May not cover the child if they develop health issues later in life. |

| Can be purchased at any time. | Usually needs to be added when the parent's policy is initially purchased. |

In conclusion, both life insurance for children and child insurance riders have their advantages and disadvantages. Life insurance for children offers more comprehensive and permanent coverage but may be more expensive. On the other hand, child insurance riders provide a cost-effective way to insure multiple children, but the coverage is limited in duration and amount. When deciding between the two, it's essential to consider your family's specific needs, budget, and long-term financial goals.

When to buy life insurance for your child

Life insurance for children is usually purchased by a parent or guardian as a safety net in the tragic case that their child passes away. The policy is usually term-based, lasting until the child becomes an adult, but it can also be permanent, which would allow the child to access coverage for their entire life at a lower rate.

The best time to buy life insurance for your child is when they are young. The minimum age for life insurance ranges from 0–14 days, meaning you can take out life insurance for your baby, child, or teen. Typically, no medical exam is needed to qualify for coverage, so you can enrol them at any time, but enrolling them at a younger age may result in a lower premium.

Pros of getting life insurance for children

• Ensuring lifelong coverage: Purchasing a convertible term or whole life policy for a young child ensures they'll have coverage later in life, especially if they develop a medical condition that may make buying their own policy difficult.
• More cash value: Buying a whole life policy for a child allows more time for the cash value account to grow, providing them with an additional financial resource once they reach adulthood.
• Helps cover funeral services: If the worst happens, you'll have funds available for funeral services and to take time off from work.
• Cheaper premiums: Since children cost less to insure, you can get a lower premium on a whole life policy than if your child were to wait to get their own policy as an adult.

Cons of getting life insurance for children

• Long-term costs: Keeping a life insurance policy active for your child means paying decades' worth of premiums. If the policy becomes unaffordable, you may have to cancel it before your child can take over the premium payments.
• Other investment options: There are other ways to provide financial support for a child once they reach adulthood, such as a 529 college savings plan. Consult a financial advisor to compare all of your options before choosing a plan or policy.

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 insurance company. Here is a breakdown of the costs and factors to consider:

Age and Gender:

The younger the child, the cheaper the policy tends to be. This is because the rate you lock in at the time of purchase is often guaranteed for the duration of the policy. Additionally, the cost of insuring a child is generally lower for females than for males.

Coverage Amount:

The cost of life insurance for children also depends on the amount of coverage desired. Most children's life insurance plans offer less than $100,000 in protection, which may not be sufficient for adults with larger financial responsibilities.

Policy Type:

Whole life insurance policies for children tend to be more expensive than term life insurance policies. Whole life insurance provides lifelong coverage as long as premiums are paid and often includes a cash value component that grows over time. Term life insurance, on the other hand, is less costly but expires after a certain period, typically around the child's 25th birthday.

Health History:

The child's health history can also impact the cost of life insurance. While children with specific health issues can still qualify for life insurance, those with congenital disabilities or mental development disorders may be declined. Ongoing health conditions may result in higher premiums.

Insurance Company:

Different insurance companies offer varying rates for children's life insurance. It is essential to compare quotes from multiple companies to find the most cost-effective option.

Alternatives to Life Insurance:

It is worth noting that life insurance for children may not always be the best financial decision. The money that would be spent on premiums could instead be invested in other financial products, such as a 529 college savings plan, a custodial account, or a high-interest savings account. These alternatives can provide better returns and may be more beneficial in the long run.

What type of life insurance is best for children?

When it comes to life insurance for children, there are two main options: purchasing a separate life insurance policy for the child or adding a child term rider to your own life insurance policy. The best type of life insurance for children will depend on the specific needs and circumstances of the family.

Separate Life Insurance Policy for the Child

This option provides standalone coverage for the child and is typically purchased by parents or grandparents. The policyholder can also be the beneficiary who receives a payout if the insured child passes away. Whole life insurance policies are common for children, as they provide lifelong coverage as long as premiums are paid, and premiums tend to be guaranteed, so they won't increase over time. Additionally, a portion of the premium goes towards building cash value, which can be accessed while the child is alive.

Some companies offering separate life insurance policies for children include:

• American Family
• Mutual of Omaha
• Aflac
• Foresters
• Gerber Life
• Globe Life

Child Term Rider on Your Own Life Insurance Policy

This option allows you to add extra coverage for your child to your existing policy. The rider pays out if the child passes away, but the coverage usually ends if the parent dies first. However, you may have the option to convert the rider to a permanent policy for the child once they reach a certain age. Child term riders are often more affordable than purchasing a separate policy and can provide coverage for multiple children under one rider.

In summary, the best type of life insurance for children will depend on factors such as the family's budget, the desired level of coverage, and the long-term financial goals. It is important to carefully consider the pros and cons of each option before making a decision.

Frequently asked questions