Life Insurance for Children
Just like car insurance protects your finances in the event of a crash, life insurance exists to cover financial responsibilities when you die. While we may consider purchasing life insurance for ourselves, we don’t often think about getting it for our children – although it could be a smart investment. Child life insurance policies are particularly beneficial for families who want to guarantee their child’s future insurability and provide an investment vehicle for your child. If your family has a history of genetic issues or your child has a life-threatening illness, you may also want to look into purchasing a policy.
You may be wondering whether buying life insurance for your child is the right option for you. Below, we discuss the pros and cons, and where to purchase a policy if you decide it’s right for you.
Should you buy life insurance for children?
Unsure whether or not to purchase life insurance for your child? Here are four of the most common reasons families may want to purchase life insurance for their children.
Guaranteeing your child’s future insurability
Purchasing life insurance for your child can make them more insurable in the future. Typically, your child’s health rating will be locked in for the future. That means if your child is in worse health or develops a condition like diabetes as an adult, they’ll likely still be able to get good coverage at competitive rates.
Providing an investment vehicle for your child
You or your child will be able to take out money from the cash value account associated with their policy. When your child reaches adulthood, they may want to surrender their policy and collect the money, or even borrow money against it.
Covering costs if something does happen to your child
Losing a child can be one of the most traumatic experiences in life. In the even that the worst did happen, having child life insurance would mean you could focus on grieving and healing, rather than worrying about the finances of a funeral. Although it isn’t fun to think about, the median funeral cost in the United States is $7,640.
Your child’s health
While child mortality rates are low in the United States, some children live with health issues or come from a family with a history of medical or genetic issues. If this describes your child, life insurance may be even more beneficial.
If they have a life-threatening illness already
If your child has a life-threatening illness, purchasing life insurance for them can help you focus on helping your child rather than worrying about finances.
If your family is genetically predisposed to certain conditions
If your family has a history of genetic or medical issues, it may be wise to invest in a child life insurance policy in the event that something happens.
Why you should buy life insurance for children
The chances you’d outlive your child or grandchild are extremely low. Nevertheless, there are reasons why you would want to buy a kids life insurance policy. According to insurance expert, Laura Adams, “The purpose of having different types of insurance is to reduce financial risk and give you peace of mind. When it comes to life insurance for children, there are pros and cons parents should consider.” Take a look at when life insurance for children is ideal.
If your child suffers from a life-threatening illness
Life insurance for children is a good idea if your child suffers from a debilitating or chronic illness. Larger amounts of life insurance would require a medical exam, but you could buy insurance for smaller amounts to cover burial costs, for example, without the child having to undergo a health check.
If your family is genetically predisposed to certain conditions
If you’re concerned that your child may inherit a genetic or medical condition, buying life insurance for your child before the condition becomes chronic or life-threatening could lock in future life insurance when the child becomes an adult.
Imagine a scenario of a child developing a medical condition that wouldn’t be insurable. Adams says, “Purchasing a permanent life policy early in the child’s life guarantees they have at least that much coverage as an adult. And if your child dies, the policy would help you pay funeral expenses and other costs.”
You can choose between purchasing term life insurance or whole life insurance.
You can choose a term life insurance policy with guaranteed renewal or that can be converted into a permanent life policy. Term life insurance policies are cheaper and don’t require a medical check at renewal or conversion.
Or you can purchase a permanent or whole life insurance policy early on. Wondering if whole life insurance is worth it? Whole life policies are more expensive, but the rate will be locked in for life. As long as your child continues to pay for the policy through adulthood, the rates and coverage won’t change.
Why you should not buy life insurance for children
Some life insurance companies will push you to choose a whole life policy to serve double-duty as a life insurance payout and college savings. A whole life policy is permanent — it has no expiration date and has a cash portion to it. The premium you pay goes towards the death benefit and a savings account. The problem is, there are better ways to invest the premium you’d pay for the policy.
According to Adams: “While a permanent life policy accumulates a cash value over time that you can use for any purpose, the main downside is that it may have relatively high fees and not be the best investment vehicle. You may come out ahead by using a 529 college savings plan or a regular investment account.“
Pros and cons of buying life insurance for your child
It may be helpful to look at the pros and cons of purchasing life insurance for your child prior to making your decision.
|May guarantee your child’s insurability||Cash value has a low rate of return|
|May help lock in a low rate for your child’s coverage||Low coverage limits (usually)|
|Provides funds for funeral expenses|
|Savings component if you have a cash value|
Purchasing life insurance for your child can help them be more insurable in the future by locking in a health rating that they can use for the rest of their life. Even if they were to develop diabetes, they would be able to get competitive health insurance at a lower cost. In the future, your child would be able to use the cash value portion of their policy by borrowing against it, withdrawing those funds or even surrendering the policy. In the event that the worst happens and your child were to pass away, you would be able to focus on grieving rather than worrying about the finances of an expensive funeral.
On the flipside, child life insurance is not for everyone. Cash value accounts usually have a low rate of return and these policies typically have a low coverage limit.
Where to purchase life insurance for kids
If you’re interested in purchasing the best life insurance for kids, you have several competitive life insurance companies to choose from. After reading about their policy offerings, you may want to consult a licensed insurance agent and generate a few quotes to see where you can save the most money. A few top insurers are:
- Gerber Life: While Gerber is best known for selling baby food and products, the company also has a life insurance division known as Gerber Life. You can buy permanent life insurance policies for children between the ages of birth to 14 for an amount of $10,000 to $50,000.
- Mutual of Omaha: Mutual of Omaha sells whole life insurance for children. You can purchase a policy for a child as young as 14 days old until they’re 17 years of age. Benefit amounts are between $5,000 and $50,000 and can be purchased online or through an insurance broker.
- Transamerica: Transamerica drops the minimum on life insurance for children. You can buy a policy with a value of $1,000 to $50,000 for an infant or child up to 17 years old. To get more information about child life insurance from Transamerica, you would need to speak with an agent or visit a local participating broker.
- Foresters Financial: The highest-value kids life insurance can be found through Foresters Financial. It was recently introduced and offers coverages of $5,000 to $75,000 for kids up to the age of 17. You’ll need to connect with an agent to get a quote or buy life insurance.
Frequently asked questions
What is the child life insurance company?
The best life insurance for kids will vary for every family. To find the best option for you, it may be wise to decide what type of policy you’re looking for, speak to an agent and generate quotes from a few different companies to see which one fits your preferences and budget goals.
What is a 529 college savings plan?
A 529 college savings plan is a state-sponsored, tax-advantaged plan that allows people to save for college costs. Typically, the account holder purchases credits at colleges that allow them to prepay future tuition and fees.
Are there certain children who should not have kids life insurance?
Even if your child does not have a life-threatening illness or a family history of genetic issues, they may be able to benefit from life insurance. Your child can use their life insurance policy for future insurability or use the funds from their policy’s cash value account later in life.