Life Insurance for Children – Money

Buying life insurance for a child might seem illogical since kids typically have no income that needs replacing — a key reason adult lives should be insured.

While life insurance for children may not be an essential buy, it has some advantages. First, buying a policy when the child is young can protect them against premiums rising and ensure future insurability.

Second, a policy on your child can cover costs related to their death. And third, since the child’s policy must be a permanent one, it will build cash value from which the child can draw when they are an adult.

For all its pluses, though, there’s an important caveat to buying life insurance for your child: you must be carrying at least as much life insurance on your own life — and sometimes more.

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What is life insurance for children?

In most respects, life insurance for children is much like life insurance for adults: premiums are paid monthly or annually and the policy pays out a death benefit in the event of death.

There are some key differences that child insurance policies apart, though:

The parent, grandparent or legal guardian owns the policy. You can typically buy a life insurance policy for your kids when they’re as young as 14 days old and as old as 14 years. Some companies write new policies for children of up to 24 years of age. Applications don’t require a medical exam and ask only for a health questionnaire. The only policies available for children are permanent ones, and most commonly whole life insurance. Permanent life insurance provides coverage for the entire life of the policyholder, usually at a stable rate, as long as the premiums are continuously paid. You can also get life insurance for a child under a term policy only by adding the coverage to your life insurance as an optional rider. A child rider will cover the minor until a certain age, often with an option to then convert the coverage to a permanent policy at additional cost.

Why buy life insurance for children?

It’s distressing to plan for the possibility of a child dying, and the odds of a child dying are statistically low. Yet ensuring their life can provide peace of mind about having to struggle with the financial fallout from their death.

Insuring your kids at an early age can ensure they’re covered against events that could complicate getting a policy later — such as developing a serious medical condition or taking up a high-risk profession or hobby, such as skydiving.

And if you want to increase the death benefit on a child’s policy, many insurance companies offer insurance riders that allow you to buy additional coverage without the need for a medical exam.

Whole life insurance for children

If you’re considering life insurance as an investment in your child’s future, however, a stand-alone whole life insurance policy can offer several benefits.

The cash value savings component on a whole life policy, for example, could help your children pay for college and other expenses as they grow up. And parents might enjoy the flexibility of these funds over, say, holding money in a 529 plan, which can only be used for educational expenses.

Cash value, the investment component of permanent life insurance, has more time to grow with a policy that’s bought for a child. In a pinch, you can even borrow against the value or use it to help pay the policy’s premiums.

The policy’s cash value may not be your primary reason for purchasing life insurance, but it’s an excellent additional benefit.

Child life insurance rider

A children’s whole life insurance policy can help pay for funeral costs, but there may be a better option if these expenses are your primary motivator for purchasing children’s life insurance.

Adding a rider to your term life insurance policy that covers funeral costs might be less expensive than getting a whole life policy for your child — in part because permanent insurance typically costs much more than term coverage for the same benefit amount.

Regardless of whether you choose an add-on or a separate policy, plan for the life insurance payout to cover not only funeral expenses but also the possible financial setbacks that could accompany grieving for your child. Those costs can include having to take extended time off work without pay and paying for grief counseling.

How to buy the best life insurance for children

You may be asking yourself, “when’s the right age to buy life insurance for my kids?”

Well, since rates go up the older the child becomes, you won’t get a lower price than when you insure your children as newborns.

Because rates are so inexpensive then, you could even choose to pay off all premiums on the policy in ten to twenty years — before the child reaches adulthood.

1. Consider your own life insurance needs

Buying a life insurance policy on your kid requires you to have one of your own of equal or greater value to the child’s.

Requirements vary by company but usually, the parent needs to have at least double the amount of coverage that is on the child. It doesn’t matter if the parent’s coverage is term or permanent.

Example: If you want a $50,000 policy for your child, then you would need to be insured for at least $100,000.

If you’re looking for coverage, consider Money’s top picks for the best life insurance companies.

2. Take care of other priorities

Before you decide to insure your children, make sure other important priorities such as saving for retirement and paying down high-interest debt are taken care of.

Evaluate your family’s budget, take stock of your investments and assess your own life insurance needs. Consulting a certified financial planner is advisable to understand whether life insurance for your kids fits into your overall financial picture.

3. Consider other options

You may also realize life insurance for children isn’t suitable for your family. There are other ways to give back to them what you’d spend in premiums, such as providing them a cash gift at certain ages or having separate savings to help them pay for college.

How much is life insurance for children?

Buying a whole life policy is more expensive than adding a child life rider to your term life policy, according to Quotacy, a life insurance brokerage firm. The difference is due to whole life coverage being for your children’s lifetime and carrying a cash value component, which a term policy’s rider does not.

The premiums on whole life policies depend on the child’s age and gender.

Example: The average monthly premium on a $50,000 policy — a fairly high death benefit for a child — for a female 5-year-old can be as low as $26.96, according to Quotacy.

As noted above, the younger your children are when you purchase the policy, the more affordable it will be, and the more time the cash value will have to grow.

Life insurance companies typically restrict how much coverage parents or legal guardians can buy for their kids. Coverage amounts can start as low as $10,000 and go up to $100,000. That range falls short of the death benefit of $1 million, or more, you can choose for an adult policy.

Why the gap? It comes back to the child’s lack of significant income, at least in most cases. Since kids don’t bring any income into the household, insurers set the range of benefits based on other financial burdens of your child passing unexpectedly, such as paying for a funeral and covering a temporary loss of income.

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Summary of Money’s guide to life insurance for children

If you’re wondering why you should buy life insurance for your children, keep in mind these three things about buying life insurance for kids: it can serve as an investment, it can be relatively affordable and you could save even more if you added your kids to your policy. Life insurance for children is designed to cover the costs involved in losing a minor, including final expenses and other costs that can arise from grieving. Loved ones may also purchase a permanent life insurance policy as an investment for a child’s future. When the child grows up, they may use the policy’s cash value to pay for their education or buy a home. Buying life insurance coverage for your child at a young age can lock in a low rate and provide them some protection if they later develop health issues that prevent them from getting a policy on their own. The younger the child is when you buy the life insurance plan, the lower the cost. Whole life insurance (the only type available for children) is more expensive than insuring your child through adding a child rider to your term life policy. However, premiums are guaranteed to remain the same for the life of the policy. Monthly premiums on a $25,000 policy for a 1-year-old can start as low as $15.