Table of Contents
What Is Life Insurance for Kids?
Life insurance for kids is a specialized type of financial product designed primarily for children under 18. Unlike traditional life insurance for adults (which primarily replaces income), children's life insurance serves different purposes.
These policies are typically whole life insurance products that provide permanent, lifelong coverage with a cash value component. This cash value grows tax-advantaged over time and can be accessed later in life. Unlike term insurance, which expires after a set period, children's whole life insurance stays with them permanently.
Parents, grandparents, or legal guardians usually purchase these policies, serving as the policy owner until the child reaches adulthood (typically age 21). At this point, ownership can be transferred to the child.
Most children's life insurance policies offer modest death benefits, usually between $10,000 and $50,000, with affordable monthly premiums ranging from $10 to $30, depending on the coverage amount.
Pros: Benefits of Life Insurance for Kids
Children's life insurance offers several advantages beyond the standard death benefit protection. Recognizing these advantages can clarify whether this policy suits your family's circumstances.
Guaranteed Future Insurability
Guaranteed insurability is a key reason to consider life insurance for children. When you purchase a policy while your child is young and healthy, you lock in their ability to maintain life insurance coverage regardless of health changes that might occur later in life.
Many children's policies include guaranteed purchase options that allow the insured to buy additional coverage at specified ages without providing proof of insurability. This feature is invaluable if your child develops a future health condition that would otherwise make obtaining insurance difficult or prohibitively expensive.
Cash Value Accumulation
Whole life insurance for kids provides a death benefit like term insurance and builds tax-deferred cash value that can be borrowed or withdrawn for future needs. However, taking loans or withdrawals can reduce the death benefit and may impact the policy’s long-term value.
Locked-In Low Premiums
Premiums for whole life insurance policies remain fixed and low when purchased early. However, consistent premium payments are required to keep the policy in force.
Funeral Expense Protection
Life insurance, though challenging to think about, mainly covers end-of-life expenses. The death benefit settles funeral costs and medical bills, enabling grieving parents to focus on emotional healing instead of financial burdens.
Cons: Drawbacks of Life Insurance for Kids
Despite its benefits, children's life insurance isn't the right choice for every family. Before purchasing a policy, consider these potential drawbacks:
Opportunity Cost
Money spent on life insurance premiums could be invested in vehicles specifically designed for education funding, like 529 college savings plans, which might yield higher returns for that specific purpose.
Limited Death Benefit Needed
Since children don't have dependents or income that needs replacing, the primary purpose of life insurance (income replacement) doesn't apply, making the death benefit less necessary than for adults.
Potential for Lapsed Coverage
If premiums aren't maintained, the policy could lapse, potentially wasting years of payments and losing the guaranteed insurability benefit.
Types of Life Insurance for Children
When considering life insurance options for kids, you'll encounter several different types of policies. Understanding the distinctions helps determine which might best suit your family's needs.
Whole Life Insurance for Children
Whole life insurance is a type of permanent life insurance that represents the most common type of juvenile life insurance. These policies offer:
- Permanent coverage that never expires for their entire lifetime
- Fixed premiums that never increase
- Guaranteed cash value growth
- Fixed death benefit
Many parents and grandparents favor whole life insurance for its predictability and simplicity. Once purchased, the coverage terms remain constant throughout the child's entire life.
Child Riders on Parent Policies
Instead of buying separate policies, parents can add children to their adult policy through child life insurance riders. These riders typically offer around $10,000 in term coverage for a minimal additional premium.
Key characteristics of child riders include:
- Lower cost than standalone policies
- Coverage for multiple children under one rider
- Term coverage that expires when the child reaches adulthood
- No cash value component
- No guaranteed insurability options
While more affordable, riders don't offer the long-term benefits of dedicated children's whole life policies.
Gerber Life Grow-Up Plan
The Gerber Life Grow-Up Plan deserves specific mention as one of the most well-known child life insurance policies. This whole life policy doubles its face value when the child turns 18, with no premium increase. The policy can be transferred to the child's ownership at age 21.
When Life Insurance for Kids Makes Sense
While not essential for every family, children's life insurance makes particularly good sense in certain situations:
- Desire for a Financial Head Start: Some families view whole life insurance as a way to provide long-term financial flexibility for their child’s future.
- Specific Estate Planning Needs: Juvenile life insurance can be useful in estate planning for wealthy families to address future estate tax liabilities or to balance inheritances among children.
- Family History of Medical Conditions: Securing guaranteed insurability early is invaluable if your family history includes genetic disorders, hereditary diseases, or chronic conditions. Conditions like diabetes, heart disease, or certain cancers may complicate obtaining affordable life insurance later in life.
- Protection for Family Businesses: Juvenile life insurance can be integral to a family business succession plan, offering liquidity and ensuring generational business continuity.
How to Choose the Right Policy
When selecting life insurance for a child, consider these factors:
- Coverage Amount: Most experts suggest modest coverage amounts for children, usually ranging from $25,000 to $50,000. Although some companies provide higher amounts, keep in mind that the primary advantages are in the guaranteed insurability and cash value components, rather than the death benefit coverage.
- Premium Affordability: Select a premium payment plan that you can sustain with confidence over the long term. Failing to make payments may lead to a lapsed policy, jeopardizing your investment and forfeiting valuable benefits.
- Policy Features: Look for policies that offer guaranteed purchase options for additional coverage without proof of insurability, cash value growth guarantees, policy ownership transfer options when a child reaches adulthood, and a premium waiver in case the policyholder becomes disabled.
- Company Financial Strength: Since children's life insurance represents a decades-long commitment, choose financially strong insurance companies with proven longevity. Check ratings from independent agencies like A.M. Best, Moody's, and Standard & Poor's.
- Policy Conversion Options: Some policies offer advantageous conversion options, allowing transition to permanent coverage or increased death benefits at specific milestones without additional underwriting.
How to Purchase Life Insurance for Kids
The process of obtaining juvenile life insurance typically follows these steps:
- Research providers specializing in children's coverage.
- Gather basic information including the child's name, date of birth, and Social Security number.
- Complete an application with parental/guardian consent.
- Answer health questions (most juvenile policies require limited health information rather than full medical exams).
- Select coverage amount and riders.
- Set up a premium payment method.
- Review and sign policy documents.
Most juvenile life insurance applications process quickly, often providing coverage within days of application.
Final Thoughts
Life insurance for kids represents a unique financial planning tool that combines protection benefits with long-term value accumulation. It offers distinct advantages, particularly for those concerned about future insurability or looking to provide a flexible financial asset for their child's adulthood.
Before purchasing a policy, carefully weigh your overall financial situation, prioritizing emergency savings and adequate coverage for income-earning adults first. If those fundamentals are in place, a modest whole life insurance policy for your child might be a valuable component of their long-term financial foundation.
Learn if life insurance for kids is right for your family's unique situation. Contact Us
Source & Footnotes
- Gerber Life Grow-Up Plan - Gerber Life Insurance Company. https://www.gerberlife.com/child-life-insurance/grow-up-plan
- Loans and withdrawals may generate an income tax liability, reduce the Account Value and the Death Benefit, and may cause the policy to lapse. Loans will accrue interest. Tax-free treatment assumes the policy is not a Modified Endowment Contract (MEC), withdrawals do not exceed cost basis, and the policy does not lapse.
- Cash value may take years to accumulate unless a large premium is paid up front.
