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Life insurance for children

Fact-checked with HomeInsurance.com

You may be wondering why you would need to buy life insurance for children. Typically, life insurance is used to leave surviving dependents an inheritance if you pass, or to cover outstanding debts. But there are a few good reasons to start early with a kids life insurance policy. In this article, we will explore the pros and cons of life insurance for children.

Can I buy life insurance for children?

It’s not uncommon to find life insurance companies that sell policies with children named as the insured. Some are better known than others — Gerber, the maker of baby foods, advertises kids life insurance.

Buying life insurance for a minor means you’re naming the child as the insured on the policy. As with all types of life insurance, you’ll need to name a beneficiary to receive the payout. Typically, a parent will be the beneficiary who will receive the death benefit on a life insurance policy in which the child is the insured.

Why and why not buy life insurance for children

There are several key considerations to evaluate before you secure your child’s life insurance policy. One of the primary advantages is that a life insurance policy will be much cheaper for a child than for an adult. If your child has a certain genetic or medical condition which may make it more difficult to buy insurance when they’re older, you could purchase a permanent life insurance policy while they’re young. As long as it’s paid on time, your child will be guaranteed coverage for their lifetime.

Another sensible reason to buy kid’s life insurance is to cover burial expenses if something terrible happens. Funerals can cost thousands of dollars. In comparison, a term life insurance policy for $10,000 may cost as little as $6.50 per month

One of the most-marketed reasons to buy life insurance for a child is for college planning. However, there are generally-better ways to invest for your child’s education. A 529 plan or scheduling automatic contributions to a low-fee mutual fund are typically more advantageous options, giving you more flexibility and control over the money.

Here are some additional factors to consider:

ProsCons
Much cheaper than adult life insurance.Not the best college savings plan.
Guaranteed coverage for life.The savings portion has fees and rules that apply if your child needs to access the funds.
Covers funeral costs and other expenses.The chances of a young death are typically low.
Certain policies build savings over time.

How to buy life insurance for children

If you’d like to buy life insurance for your grandkids or your child, get started by deciding on the policy amount. A standard child life insurance policy is limited to $50,000, but you could choose a higher limit than this depending on the purpose of the policy. Once you know how much you’d like the limit to be, shop around and compare quotes to find the best life insurance for your child. 

Narrow your list down to the quotes you like the most, then look at customer reviews of the companies through websites such as the Better Business Bureau or J.D. Power. The National Association of Insurance Commissioners (NAIC) also has good information on life insurance companies. Once you’ve chosen the ideal insurer based on rates and ratings, you’ll need to fill out an application. Don’t forget to have the child’s and beneficiary’s Social Security numbers handy — you’ll need them for the application process to verify identity.

Types of life insurance for children

As with adults, there are a few primary types of life insurance — term and permanent. Take a closer look at each type below.

Term life insurance for children

Term life insurance policies for children are the simplest and least expensive type. They come with an expiration date, meaning that you’ll need to choose a term for the policy. Terms are typically 10, 20 or 30 years in length, and the premium is locked in for the duration of the term.

The issue with this type of policy is, once the term is over, all the premiums you paid to the insurance company are gone and your child won’t have any coverage. That being said, some term life insurance policies may allow you to convert the policy to permanent insurance without a medical exam before the term is over.

Permanent life insurance for kids

Permanent life insurance policies also come in a variety of formats, such as whole life, variable and universal life insurance. The biggest difference between term vs. permanent life insurance for children is the expiration of the policy. Permanent life insurance covers you as long as you’re alive and making your payments. 

In addition, whole life insurance for children comes with a cash account, similar to a savings account. The premiums you pay go towards the future death benefit your child will leave behind and a cash value account your child can withdraw and borrow from in the future. If your child has potential health issues, a permanent life insurance policy guarantees them insurance coverage for life at a fixed price. 

The main drawbacks for this policy type are the cost and ease of applying. Permanent life insurance is more expensive because of the two components — the death benefit and cash value. Plus, there are many conditions your child would need to follow when they’re an adult to withdraw from the cash value.

Is term or permanent life insurance better for kids?

Deciding on whether term or whole life insurance for children is the best decision depends on your goals. It can be an uncomfortable subject to approach. If your child is suffering from a life-threatening illness and not expected to survive into adulthood, term life insurance would likely be best. It’s far less expensive than permanent life insurance and easier to set up.

If your child has a medical condition that may be difficult to insure in the future, a permanent life insurance policy, which covers the child for life, may be a better choice. It may cost more, but the cheapest time to buy it and lock in the premiums for life is when the child is young.

Is it worth it to buy life insurance for children?

As mentioned, life insurance for children has its advantages for a small number of families. For most parents or grandparents, buying their descendants a life insurance policy may not be necessary. It’s likely the child will easily find the best life insurance policy in their 20s or early 30s. 

In addition, using a life insurance policy to fund college isn’t necessarily the best use of your money. Investing in a mutual fund, purchasing Treasury Notes or setting up a 529 savings account will likely bring you better returns.

Life insurance is best for kids with genetic or medical conditions that put them at high risk of death or may make it difficult to get insured in the future. In either case, parents need to decide if the policy is meant to cover end of life and burial expenses through a term life policy, or to guarantee coverage into adulthood through permanent life insurance.

Alternatives to child life insurance

The best alternative to child life insurance is a savings plan. Regardless of whether you need burial expenses or money for college, you are likely better off putting money away each month in a savings account, or speaking with a financial advisor to help you create a college savings fund.

The takeaway

  • You can purchase a life insurance policy and name a child as the insured.
  • You can choose term life with an expiration date or permanent life insurance that guarantees coverage for your child for life.
  • Life insurance for kids is a good option if your child has a medical condition that may make getting life insurance coverage as an adult difficult.

Buying life insurance for children is something most parents may never need to do. In most cases, your child will be able to qualify on their own for competitive prices when they’re in their 20s or 30s. But for some parents with kids who have unique medical situations, a kids life insurance policy can be a helpful financial planning tool.

Cynthia Paez Bowman

Writer

Cynthia splits her time between Los Angeles, CA and San Sebastian, Spain. She travels to Africa and the Middle East regularly to consult with women’s NGOs about small business development.

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