Child Life Insurance: What Insurance Provides For Children

Children's 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, at $50,000 or less, and it's typically only worth it if the child has a medical condition or the family has a history of medical issues. Children's life insurance can also be used as a long-term savings mechanism, as the policy includes a cash value component that grows over time.

Children's life insurance can be purchased as a standalone whole life policy or as an add-on to a parent's policy

Children's life insurance can be purchased as a standalone whole life policy for the child or as a rider on a parent or guardian's life insurance policy. Here's what you need to know about each option:

Standalone Whole Life Policy

A standalone whole life policy is a permanent life insurance policy that is taken out specifically for the child. It provides coverage for the child's entire life, as long as the premiums are paid. The coverage amount is typically lower than that of an adult policy, usually less than $50,000, but some policies may offer higher coverage. Standalone whole life policies for children often include a cash value component that grows over time and can be accessed by the child later in life. This type of policy may also offer the option to purchase additional coverage at certain milestones, such as getting married or buying a home.

Rider on a Parent's Policy

Alternatively, children's life insurance can be added to a parent or guardian's life insurance policy as a rider. This option typically covers all children in the family under one rider, and the coverage lasts until the child reaches a certain age, usually between 18 and 25 years old. The coverage amount is generally lower, often maxing out at $25,000, but it can be converted to a permanent policy when the child becomes an adult. Adding a rider to an existing policy is usually more affordable than purchasing a separate policy for the child.

When deciding between a standalone policy and a rider, it's important to consider the child's future needs, the cost of the premiums, and the potential benefits of each option. Standalone policies may offer higher coverage amounts and additional features, but they also come with long-term expenses. Riders, on the other hand, are more affordable but may not provide sufficient coverage for the child's future needs. It's essential to weigh the pros and cons of each option before making a decision.

Coverage or death benefits are usually less than $50,000, but some policies offer higher coverage

Coverage or death benefits provided by children’s life insurance policies are usually less than $50,000. This is because children are less likely to die young and therefore require a lower death benefit. However, some policies do offer higher coverage, with some insurers providing coverage of up to $500,000.

The Gerber Life Grow-Up Plan, for example, offers $5,000 to $50,000 of whole life insurance coverage for children, with the coverage amount doubling when the child turns 18. Protective, the best overall life insurer for children, offers up to $25,000 in coverage for children aged 15 days to 18 years under one rider, with the option to convert the rider to a permanent policy worth up to five times the rider's face amount once the child reaches adulthood.

Children's life insurance policies are usually purchased by parents or grandparents, and the adult who purchases the policy will be the policyholder. The coverage is typically permanent and 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 includes a cash value component that grows over time.

The cash value of a children's life insurance policy can be used by the child for various purposes, such as college tuition, starting a family or a business, or supplementing retirement income. Additionally, the policy can make it easier and more affordable for the child to maintain life insurance coverage later in life, especially if they choose a high-risk career.

While children's life insurance can provide financial protection and peace of mind, it is important to consider the potential drawbacks, such as the long-term expenses of lifelong premium payments and the low rate of return on whole life insurance plans for children.

It can be easier and more affordable for children to maintain life insurance later in life

Children's life insurance can be purchased as a standalone whole life policy or as a rider to a parent or guardian's life insurance policy. While it may not always be worth it, there are several reasons why it can be easier and more affordable for children to maintain life insurance later in life.

Guaranteed Future Insurability

Certain health conditions and occupations can make it harder to get life insurance as an adult. Children's life insurance policies typically allow the insured minor to get coverage as they mature, regardless of these factors. For example, if your family has a history of genetic medical conditions, you might want to insure your child so that you don't have to worry about them being denied coverage later in life if they develop a medical condition.

Locking in Lower Premiums

The younger the insured person is, the cheaper their premiums will be. Insurance companies lock in these low rates for policyholders at the time of coverage and will not increase them over time. This can make it easier for children to maintain life insurance later in life.

Coverage for Funeral Expenses

If the worst happens, a life insurance policy for a child can give parents peace of mind, knowing that they will be able to cover funeral costs and take time away from work to grieve.

Cash Value

The cash value of a children's life insurance policy grows tax-deferred, meaning you won't pay taxes on gains until you withdraw them. This can be beneficial for children later in life.

The cash value of a children's life insurance policy grows tax-deferred

Children's 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.

The cash value of a children's life insurance policy can be accessed in several ways:

• Policy loans: You can borrow against the cash value of the policy, using it as collateral for a loan. This option typically comes with low-interest rates and no credit check, but if the loan is still outstanding when the insured person passes away, the value of the loan will be deducted from the death benefit paid to beneficiaries.
• Partial withdrawal: You can make a partial withdrawal of the cash value, which will reduce the overall death benefit. With variable and universal life insurance policies, the payout to beneficiaries is reduced by the amount withdrawn. With whole life insurance policies, the insurer may reduce the death benefit by a greater amount than was withdrawn.
• Surrender the policy: If you cancel the life insurance policy, you can receive the cash value minus any surrender charges and unpaid premiums or outstanding loan balances. This is known as surrendering the policy.

It's important to note that accessing the cash value of a children's life insurance policy will generally reduce the available cash surrender value and the death benefit. Additionally, if you withdraw more money from the cash value than you have paid in premiums, the excess amount may be taxed as income.

Children's life insurance policies can be purchased for minors from 14 days old to 17 years old, depending on the insurer

When purchasing children's life insurance, it is essential to consider the different types of policies available, such as term life insurance or whole life insurance. Term life insurance provides coverage for a set amount of time, while whole life insurance offers lifelong coverage as long as the premiums are paid. The cost of children's life insurance can vary depending on factors such as age, medical history, and lifestyle. It is important to compare quotes from multiple insurers to find the best rate and policy for your needs.

It is worth noting that children's life insurance may not be necessary for all families. Some alternatives to consider are adding a child term rider to your existing policy or taking advantage of supplemental life insurance offered through your employer. It is recommended to consult with a financial planner to determine the best options for your family's needs and financial priorities.

Frequently asked questions