Life insurance can provide a valuable safety net for loved ones who depend on you financially. But children usually don’t have jobs, so no one depends on their income. We look at the possible reasons for buying life insurance for children.
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What Is Life Insurance for a Child?
Like a life insurance policy for an adult, a life insurance policy for a child is a contract with an insurance company. With a policy for a child, a parent or grandparent is typically the policyholder. The policyholder can also be the beneficiary who receives a payout if the insured child dies.
There are generally two ways to buy life insurance for a child:
- Buy a separate life insurance policy specifically on the child, which is what we’ll focus on in this article.
- When a parent buys life insurance, they can often add a “children’s term life insurance” rider. This rider pays out if the child passes away, but the rider’s coverage ends if the parent dies first. You may be able to convert the rider to a permanent policy for the child once they reach a certain age.
What to Know About Buying Life Insurance That Covers Kids
Life insurance policies for children typically are whole life insurance policies. They can provide lifelong coverage as long as premiums are paid. Premiums tend to be guaranteed, so they won’t increase over time. Plus, a portion of the premium goes toward building cash value, which can be accessed while the child is alive, for any reason.
Some insurers, such as Aflac, offer term life insurance for children.
Buying life insurance for a child is relatively quick and easy—especially when compared with buying a policy for an adult. Some companies offer quotes and a quick application online. You’ll have to fill out an application, but your child won’t have to take a life insurance medical exam, which insurers often require for adults.
Typically, you can buy life insurance for a child who is age 17 or younger. However, the cap can be lower. For example, the age limit is 14 for the Gerber Life Grow-Up Plan. The coverage, though, remains in force throughout the child’s life, as long as the premiums are paid.
As the owner of the child’s policy, you can transfer it to your child at any point, says Henry Hoang, founder of Bright Wealth Advisors and Bright Life Insurance in California. It’s common for parents to transfer policies to their kids once they’re adults and let them take over premium payments. For example, with Gerber Life, the child becomes the policy owner at age 21.
Related: Best Life Insurance for Young Adults
What’s Needed To Buy Life Insurance for a Child?
To buy a life insurance policy for a child, be prepared to provide your child’s full name, date of birth and Social Security number. There may be a few health-related questions or none at all. Unless the child has a chronic medical condition or disease, there are typically no delays in getting approved.
The Cost of Insuring a Child
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 amount you pay also will be affected by the amount of coverage you buy. And it could be affected by the type of payment schedule you choose. For example, you may have the option to purchase a policy that is payable through the child’s age of 65 or 100, Hoang says. The further you stretch out the payment schedule, the lower the premium will be.
The insurer might offer the option to pay off a policy within a certain number of years rather than throughout the life of the child. For example, American Family Insurance has 10-year and 20-year payment options for its children’s whole life insurance policy. The shorter the payment period, the higher the premium will be, but it’s an option worth considering if you want to turn over a policy to your child that’s already paid up.
Cost of Children’s Life Insurance
| Coverage amount | Average monthly cost for a baby |
|---|---|
|
$5,000
|
$3
|
|
$10,000
|
$6
|
|
$15,000
|
$9
|
|
$25,000
|
$14
|
|
$35,000
|
$19
|
|
$50,000
|
$27
|
Be aware, though, that you shouldn’t buy a policy based on the cost alone, Hoang says. You’ll want to look at internal fees and a policy illustration that shows how much the cash value of the policy will grow over time based on a guaranteed rate of return.
The cheapest policy might not be the best approach. Hoang says you need to ask: “Is it going to give you more value down the road?” The policy’s future performance will determine whether the premium for the policy is worth it.
Who Sells Children’s Life Insurance?
Below are examples of insurers that sell stand-alone children’s life insurance policies. Many more companies offer a children’s term life insurance rider when a parent buys life insurance.
| Company and children's life insurance policy | Online quotes available? | Coverage amount |
|---|---|---|
|
Aflac Juvenile Life Insurance
|
No
|
$10,000, $20,000 or $30,000.
|
|
American Family DreamSecure Children’s Whole Life
|
No
|
$25,000, $50,000 or $75,000
|
|
Foresters BrightFuture Children’s Whole Life
|
No
|
$5,000 to $75,000
|
|
Gerber Life Grow-Up Plan
|
Yes
|
$5,000 to $50,000. The coverage amount doubles when the child turns 18.
|
|
Globe Life Children’s Life Insurance
|
Yes
|
$5,000 to $100,000 but range depends on the state
|
|
Mutual of Omaha Children’s Whole Life Insurance
|
Yes
|
$5,000 to $50,000
|
Pros of Buying Life Insurance for a Child
Buying Life Insurance for Children Guarantees Insurability
The biggest selling point of life insurance for a child is that you’re guaranteeing that your child will have coverage even if they develop a health condition later in life.
For example, if your family has a history of genetic medical conditions such as diabetes, it might make sense to insure your child, Meldrum says. Then you won’t have to worry about whether your child will be denied coverage later in life if they develop a medical condition.
If you buy life insurance for a child, you’re also ensuring that the child will have coverage if they take up a dangerous hobby, says Steve Meldrum, an insurance specialist with Swell Private Wealth. For example, Meldrum has a young client who has had trouble getting life insurance because he is a scuba diver—a hobby that insurers consider a high risk to insure.
Buying Life Insurance For Children Locks In a Low Rate
You’ll never get a lower rate on life insurance than when a child is a newborn. Rates for buying a new policy will increase as the child gets older. Of course, you or your child will be paying premiums over a longer period of time. But the amount paid over time still can be lower because of the super low rates for a child.
Life Insurance For Children Provides Funds for Funeral Expenses
The chances of a child dying are very low, so funeral costs are not a good reason to buy life insurance for a child. But if that happens, a life insurance policy will provide funds that can cover final expenses. It also could allow the family to afford to take time off from work to mourn the loss of a child.
If you’re primarily interested in life insurance for a child to cover funeral costs, you likely can add a rider to your own life insurance policy to cover your child for less than what you’d pay for a whole life insurance policy on the child.
Life Insurance For Children Has Cash Value
A portion of the premiums paid for a whole life insurance policy go toward building cash value. When you buy a policy for a child vs. an adult, a bigger portion of the premium will go toward the cash value because the cost of insurance is low, and there’s more time for the cash value to build.
Although life insurance for a child doesn’t always make sense, it can be a good solution for some families, Meldrum says. For example, high-income parents might find the ability to transfer wealth to their children through a life insurance policy appealing. Or they might like the tax-advantaged growth on the cash value portion of the policy.
“There’s some value in that extra time you get to accumulate cash,” Hoang says. And the cash value can be accessed for any reason. But note that withdrawing cash from the policy could trigger a tax bill and will reduce the death benefit.
Cons of Buying Life Insurance for a Child
Life Insurance for a Child Offers a Low Rate of Return
Although whole life insurance policies build cash value, they do so at a low rate of return. So life insurance for a child shouldn’t be a substitute for a 529 college savings plan, Hoang says.
If you buy life insurance for a newborn, it usually takes 15 years before the cash value equals the premiums paid—to break even, that is. However, if you were to invest in a 529 college savings plan and earn a 7% return (the average stock market return), the amount you invested would double in 10 years, Hoang says. You can expect to see much higher returns by investing in a 529 plan than with a life insurance policy.
Life Insurance for a Child Is a Long Term Commitment
When you buy a whole life insurance policy, you should expect to pay premiums for decades. “If cash flow becomes tight, it’s not going to be worthwhile if you have to cancel,” Hoang says.
Coverage Amounts Tend To Be Low
Some insurers limit the coverage amount for children’s life insurance policies to $50,000. That won’t be enough coverage once your child is an adult and has a family to support. They’ll likely need to buy more life insurance as an adult in order to have sufficient coverage.
Life Insurance for Children Is a Financial Trade-Off
If you buy life insurance on a child, you’re giving up money that could be used on other things to support the well-being of the child, Meldrum says. Because it is statistically very unlikely that your child will die at a young age, your money might be better spent elsewhere.
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Alternatives To Buying Life Insurance for Kids
Before buying life insurance for a child, make sure you have enough coverage for yourself. Protecting the financial well-being of loved ones takes priority.
You also should make sure you’ve tackled other financial priorities before buying life insurance for a child. Building an emergency fund, saving for retirement and paying off high-interest debt should take precedence.
“Take care of yourself before you take care of your kids,” Meldrum says. Then, if you have room in your budget, you could consider life insurance for your kids.
Working with a financial planner can help you determine where money is best spent in planning for the future.
Life Insurance for Children FAQs
Is life insurance for a child worth it?
Life insurance for children can be a worthy choice in situations where you want to make sure final expenses are covered if your child dies or if you want to create a financial cushion for some time off to grieve the loss.
It can also be a good decision if you have a family history of medical conditions that are probable for your child as they get older. Locking in how rates now guarantees insurability at the best rates.
Is there a minimum age for buying life insurance?
If you are buying life insurance for a child, most life insurance companies offer coverage as young as 14 days old.
If you are buying life insurance for yourself, most states and insurers require you to be at least age 18.
At what age does child life insurance stop?
Most child life insurance policies specify an age at which the policy ownership transfers from the parent or guardian to the child. With some life insurance companies, like Gerber Life, that age is 21.
Why would a child need whole life insurance?
Buying a whole life insurance policy for a child locks in low rates, guarantees insurability and allows for cash value growth. Then, the ownership of the policy transfers to the child at a specified age, like 21. Depending on the policy, it can be in force until they’re 65 to 100 years old.
