Life Insurance For Children: Is It Worth It?

Life insurance for children is a topic that raises many questions for parents, grandparents, and guardians. While it is not a pleasant topic to consider, it is worth knowing the options available to you.

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

There are pros and cons to getting life insurance for children. On the one hand, it ensures lifelong coverage, provides more cash value, and helps cover funeral services. On the other hand, there are long-term costs involved, and there are other investment options available, such as a 529 college savings plan.

When deciding whether to get life insurance for your child, it is important to weigh up the benefits against the costs and consider alternative ways to provide financial support for your child once they reach adulthood.

Pros and cons of life insurance for kids

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 is useful if the child develops a chronic health condition or chooses a risky career.
• Acts as a savings vehicle for your child: The cash value of a child's life insurance policy grows tax-deferred, meaning you don't pay taxes on gains until withdrawal. The money can help cover costs like school fees or a down payment on a home.
• Covers costs in the worst-case scenario: Child life insurance policies pay out a lump sum in the event of a child's death, helping to cover funeral costs or grief counseling.
• Lower rates: When you buy insurance for a young child, the rate will be substantially lower than for an older child or young adult.
• Lifelong coverage: Buying a whole life insurance policy for a young child guarantees future insurability, even if they develop a medical condition that would interfere with coverage options later in life.
• Final expenses: A life insurance policy can help grieving parents and family members by relieving them of funeral costs.

Cons

• Long-term costs: Keeping a life insurance policy active for a 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 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.
• Low rate of return: Whole life insurance policies build cash value at a low rate of return compared to other investment options.
• Financial trade-off: The money spent on life insurance premiums for a child could be used for other things to support the child's well-being.
• Healthy young adults can find similar coverage: Healthy young adults in their early 20s are likely to secure competitive life insurance rates, so you could save money by waiting to purchase insurance on their behalf.

Whole life insurance for kids

Whole life insurance for children is a permanent life insurance policy that treats the child as the insured but does not give them ownership of the policy. This policy lasts for the child's entire life, covering their beneficiaries as long as premium payments are made. It also offers a cash value that grows tax-deferred with fixed interest, which the child may be able to access when they become an adult.

Once your child becomes an adult, you can transfer the policy to them. Adult children may be able to maintain these policies until they are between 18 and 25 years old. After that, they can turn their policy into an individual whole life insurance policy.

Benefits

Whole life insurance for children can offer several benefits:

• Lock in cost-effective rates: Whole life insurance is one of the most expensive forms of life insurance, but younger policyholders tend to pay lower premiums. Getting a whole life insurance policy for your child can help you lock in cost-effective premiums for their entire life.
• Peace of mind: Once you purchase a whole life insurance policy for your child, they maintain that coverage for the rest of their life as long as premium payments stay up to date. That way, your child won't have to worry about purchasing or renewing coverage in the future.
• Financial head start: Getting children’s whole life insurance gives your child’s cash value more time to grow through premium payments and compound their tax-deferred interest. This can help them start their adult life with a significant financial cushion.
• Lower premium rates: Life insurance premiums generally increase with age. With whole life insurance for kids, however, it’s possible to lock in the premiums at the child’s current age, so premiums will be unusually low for their entire life.
• Guarantee future insurability: Once the policy has been issued, coverage cannot be canceled as long as all required premiums are paid. Also, if a Policy Purchase Option (PPO) Rider is included with the policy, your child has the right to purchase additional coverage at designated dates, regardless of their insurability.

Cost

The cost of whole life insurance for children will depend on the age of the child, the amount of coverage, and the state of residence. Premiums can start as low as $3.70 a month for $5,000 in coverage for a child less than a year old.

Term life insurance for kids

Term life insurance for children is usually purchased by a parent or guardian as a safety net in the event their child passes away. It is typically offered as a term or whole life insurance policy, with the minor as the insured and their parent or guardian as the beneficiary.

Term life insurance for children provides coverage for a set amount of time, usually until the child becomes an adult. It is often more affordable than whole life insurance, as it only covers a limited period. The cost of a child's term life insurance policy will depend on their age, health, and other factors, but it generally costs less than an adult policy.

One of the main benefits of term life insurance for children is that it ensures lifelong coverage. If the child develops a medical condition later in life that makes buying their own policy difficult, they will still have coverage under the term policy. Additionally, term life insurance can help cover funeral services and provide financial support to the family in the event of the child's death.

However, there are also some drawbacks to consider. Term life insurance for children may result in long-term costs, as the policyholder will need to pay premiums for the duration of the policy. If the policy becomes unaffordable, it may need to be cancelled before the child can take over premium payments.

When deciding whether to purchase term life insurance for a child, it is important to weigh the pros and cons and consider alternative options, such as a 529 college savings plan or other investment accounts.

Riders on adult policies

To qualify for this add-on, a child needs to be between 14 and 18 years old, although some policies cover children from 14 days old. The coverage will last until their 25th birthday or the policyholder's 65th birthday, whichever comes first. When the policy is about to expire, the child can convert the insurance rider into a standalone, individual policy without needing a medical exam or reapplying.

The rider will pay a death benefit to the parent if the child dies before a certain age. Typically, these riders provide coverage until a child is 22 or 25 or until they get married, whichever comes first. One rider will cover all of your children, and you don't have to notify the insurance company of each child. You will, however, have to demonstrate that the child was within the age of coverage if you need to file a claim.

The cost of a child rider is relatively low, with premiums typically added to the parent's life insurance policy cost. The child rider cost is usually the same, regardless of the number of children covered under the policy. For example, a parent with a Nationwide term life or whole life insurance policy could get a children’s term rider with a $25,000 death benefit for $10.94 a month. The cost is a few cents lower for those with a universal life insurance policy—$10.75 a month.

There are several benefits to adding a child rider to your life insurance policy. The low cost makes it an affordable way to be prepared for the unimaginable. It eliminates the burden of paying for final costs, and no one wants to worry about writing a large check for funeral expenses. It can guarantee a child's insurability, as children’s term riders usually can be converted to a permanent life insurance policy when the term is up, without medical underwriting. This can be valuable for children who develop medical issues that would make it difficult to get coverage as an adult.

However, there are also some drawbacks and limitations to child riders. The coverage amount is usually limited to $25,000 or less per child, which may not be sufficient to cover any outstanding medical bills or replace income for parents who want to take time off work to grieve. Coverage can also terminate prematurely if the parent reaches a certain age, and some insurers will terminate a rider once the parent reaches 65 or 55. Additionally, if your children want to convert the term rider to their own policies, the coverage amount may be limited.

When to buy life insurance for kids

Life insurance for children 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 main ways to buy life insurance for a child: as a separate life insurance policy or as a rider on a parent's policy. Here are some factors to consider when deciding if and when to buy life insurance for your child:

Guaranteeing future insurability:

If your child develops a chronic health condition or chooses a risky career, they may have difficulty getting life insurance as an adult. Buying a policy for your child now can guarantee their future insurability, regardless of their health or occupation.

Locking in lower premiums:

The younger the insured person, the lower the premiums. Buying life insurance for your child now can lock in lower rates for the duration of the policy, making it more affordable for them to maintain coverage as an adult.

Covering funeral expenses and other costs:

In the unfortunate event of your child's death, a life insurance policy can help cover funeral costs and other expenses. It can also provide financial flexibility for grieving parents, allowing them to take time off work beyond their bereavement leave.

Family medical history:

If your family has a history of genetic medical conditions, buying life insurance for your child now can be beneficial. It ensures that your child will have coverage later in life, even if they develop a medical condition that makes getting a policy more challenging or expensive.

Alternative savings options:

Before purchasing life insurance for your child, consider alternative ways to save for their future, such as 529 college savings plans or other investment options. These may provide higher returns and better meet your child's future needs.

Your own life insurance coverage:

Ensure that you have adequate life insurance coverage yourself before considering a policy for your child. Your coverage should be sufficient to support your family's living costs and other expenses if something happens to you.

In summary, while there are benefits to buying life insurance for your child, it may not be necessary or the best option for every family. Consider your family's financial situation, medical history, and alternative savings opportunities before deciding when or if to purchase life insurance for your children.

Frequently asked questions