Life Insurance For Children: Is It Worth It?

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 is usually purchased by a parent or guardian as a safety net in case their child passes away. The question of whether or not to get life insurance for your child depends on a number of factors, including your financial situation, family medical history, and the age of your child.

Pros: Lower rates, lifelong coverage, and potential additional coverage

One of the biggest advantages of purchasing life insurance for your child is that you can lock in a lower rate. The younger the child, the lower the premium, and this rate is often guaranteed for the duration of the policy. This means that by taking out a policy now, you can ensure your child has coverage later in life, especially if they develop a medical condition that may make buying their own policy difficult.

Another benefit of buying a whole life insurance policy for your child is that it can provide lifelong coverage. As long as the premiums are paid, the policy will remain in force for their entire life. This can give you peace of mind and ensure your child always has the financial protection they need.

In addition, some child life insurance policies offer the potential for additional coverage. Depending on the policy, your child may be able to purchase extra insurance when they are older, even if their health has deteriorated. This can provide even more financial protection and security for your child as they grow up.

Cons: Long-term commitment, lower returns than other investments, and limited funds for other expenses

One of the biggest drawbacks of buying life insurance for your child is that it is a long-term commitment. You will be expected to pay premiums for decades, and if you cancel the policy, you will lose all the money you have paid so far. This is a significant financial trade-off, as the money could be better spent on other things to support your child's well-being.

Another con is that the rate of return on life insurance policies for children is often lower than that of other investments. It can take 15 years for the cash value of a policy to equal the premiums paid, whereas investing the same amount in a 529 college savings plan, for example, could double your money in 10 years.

Finally, the money spent on life insurance premiums for your child could be used for other expenses. Raising children is expensive, and committing to life insurance premiums may limit your funds for other child-related costs.

When to get it: When the child is young to lock in the lowest premiums

When to Get Life Insurance for Your Child

The best time to get life insurance for your child is when they are young. Some insurers offer policies that cover newborns within a few days of birth. Buying a policy sooner rather than later can help you lock in the lowest premiums possible. The younger your child is when you buy a policy, the cheaper it will be. With a whole life policy, the low rate you lock in at the time of purchase will often be guaranteed for the duration of the policy.

The cost of insuring a child depends on the amount of coverage you buy, the type of payment schedule you choose, and the age of the child. The further you stretch out the payment schedule, the lower the premium will be. The shorter the payment period, the higher the premium will be.

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 easily enrol them whenever the timing is best, but enrolling them at a younger age may result in a lower premium.

How much does it cost: Depends on the child's age, health, policy type, and other factors

The cost of life insurance for a child depends on several factors, including the child's age, health, policy type, and other factors. Here are some key points to consider:

Age: The younger the child, the lower the premium. Insurers typically offer coverage for children from 14 days to 17 years old, with some policies extending up to 18 years. The rate locked in at the time of purchase often remains guaranteed for the duration of the policy.

Health: The child's health can impact the cost of insurance. While most children's policies do not require a medical exam, a pre-existing or chronic medical condition may affect the premium or the child's insurability.

Policy type: Whole life insurance policies, which provide coverage for the child's entire life, tend to be more expensive than term life insurance policies, which are temporary. Whole life insurance policies also accumulate cash value over time, which can increase the cost.

Payment schedule: The payment schedule chosen can affect the premium. Stretching out the payments over a longer period, such as until the child reaches 65 or 100 years of age, can lower the premium.

Policy payoff: Opting for a shorter payment period, such as paying off the policy in 10 or 20 years, will result in higher premiums.

Coverage amount: The larger the death benefit, the higher the cost of the policy. Coverage amounts for children's life insurance typically range from $5,000 to $50,000, but some policies offer higher coverage.

Other factors: The specific insurer, the child's height and weight, and the number of children insured can also influence the cost. Shopping around and comparing quotes from different insurers can help find the best rates.

It's important to note that the cost of life insurance for a child is generally lower than that of an adult, and it's recommended to consult a financial advisor to understand the implications and determine if it aligns with your financial goals and priorities.

Riders: Child riders can be added to your own life insurance policy to cover your child

Riders, or child term riders, are an optional add-on to your life insurance policy that covers your child. They are a cost-effective way to insure your child without having to purchase a separate life insurance policy. Child riders are typically added to a parent's life insurance policy at the time of purchase, though some companies allow you to add them after the policy is active.

Child riders usually cover all your children, including future children, for a flat rate fee. They are available for children between 15 days and 18 years old, and the coverage will last until either their 25th birthday or your 65th birthday, whichever comes first. When the policy is about to expire, your child can convert the insurance rider into a standalone, individual policy without needing a medical exam or going through the approval process again.

The death benefit provided by a child rider is typically a small, tax-free lump sum payment that can be used for any purpose, including funeral expenses and income loss from an extended leave of absence from work. While the chances of a child dying are very low, a child rider can provide peace of mind and financial support in the worst-case scenario.

In addition to the death benefit, a child rider can also provide some of the same benefits as a whole life insurance policy, such as building cash value over time. This cash value can be accessed by the child in the future for any reason, such as school fees or a down payment on a home. However, it's important to note that the cash value growth rate is typically low compared to other investment options.

When considering a child rider, it's essential to weigh the pros and cons. While it offers financial protection and can be converted into a permanent policy, the coverage amount may be limited and might not meet your child's needs in adulthood. Additionally, the cash value component may not provide the same returns as other investment types.

Frequently asked questions