How to Find the Best Life Insurance Policy for a Teenager

Name: How to Find the Best Life Insurance Policy for a Teenager
Item: How to Find the Best Life Insurance Policy for a Teenager
Author: Mandy Sleight

Find the best life insurance for teenagers by defining your coverage needs, determining your budget and weighing your options. You can choose from permanent and term policy types or get a child rider.

Updated: June 27, 2024

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Although all life insurance policy types can cover teens, not all policies are ideal for teenagers. When looking for the best life insurance for a teenager, consider age-specific factors, such as age limits on policies, the flexibility of terms, how premiums may change and whether the policy builds cash value.

You should also explore options that meet the minimum age for life insurance requirements and offer affordable life insurance for teenagers and young adults alike. Doing this ensures that your chosen policy provides immediate protection and long-term financial planning benefits, making it an ideal choice for teenagers' life insurance.

Factors in Choosing the Best Life Insurance for a Teenager
Types of Life Insurance That Cover Teenagers
How to Buy Life Insurance for Teenagers
Who Can Purchase Life Insurance for a Teenager
How Much Life Insurance to Choose for a Teenager
Cost of Life Insurance for a Teenager
Pros and Cons of Buying Life Insurance for a Teenager
Alternatives to Life Insurance for Teenagers

Key Takeaways

Premiums for teenagers' life insurance are cheaper the younger and healthier the individual is when taking out a policy.

Consider buying life insurance for a teenager if there’s a family medical history of genetic conditions that could affect approval and premiums later in life.

Some companies will automatically transfer ownership of a teenager’s life insurance policy when they become an adult, while others require signed forms to complete the transfer.

Factors in Choosing the Best Life Insurance Policy for a Teenager

Selecting the best life insurance for a teenager involves more than just comparing prices and policy features. Consider the insurer's financial stability and customer service reputation, alongside how well its offerings align with your financial goals and the specific needs of teens. Here are essential aspects to evaluate when looking for life insurance for teenagers:

Policy terms

There are two main types of life insurance policies: term and permanent life insurance. A term policy lasts a set amount of time, usually 10–30 years. Permanent life insurance, which includes whole and universal life insurance, lasts the teen’s lifetime and can be transferred to them as an adult. For parents, adding a child term rider to a family life insurance plan enhances coverage flexibility. These distinctions make identifying the best teenage life insurance a more informed process.

Price changes

Both term and permanent life insurance have level premiums for the policy duration, but there are exceptions. If you buy term insurance, the policy expires after the term ends, and the teen will then have to buy coverage at their current age and health. Although whole life insurance has level premiums, universal life offers premium flexibility, which may be beneficial if finances change in the future.

Whether it builds cash value

Term life insurance doesn’t have a cash value component, but permanent life insurance does. You can use the cash value in several ways, such as withdrawing the balance, taking a loan against it or paying premiums once the policy accrues a minimum balance.

Age limits

The age limit for life insurance is a critical factor. Most, if not all, term life insurance policies are for adults 18 and older. If your teen is younger, they may not be eligible for term life. Permanent life insurance usually has an age minimum of 15 days for newborns, so teens should be eligible for permanent life coverage at any age.

Company ratings

Checking an insurance company’s ratings can also help you determine how well the carrier can meet its long-term financial obligations. With large payouts required when an insured dies, companies with an A or better financial rating have demonstrated their past ability to pay life insurance claims. Insurance company rating agencies include:

By considering these factors, you can better navigate teen life insurance options, ensuring you select a policy that offers both protection and financial growth potential.

Types of Life Insurance That Cover Teenagers

The best type of life insurance for a teenager is permanent life insurance or a child rider on a family life insurance plan. Term life is an option when looking for life insurance for an 18-year-old or 19-year-old since companies usually won’t offer term life insurance to a minor, even if a parent buys it.

Child rider

A child life insurance rider is a policy provision on the parent or guardian’s life insurance policy. It is sometimes called a family life insurance plan since it can cover family members on one policy. It is the most cost-effective way to get life insurance for teenagers, but it has limitations. There is usually a maximum coverage of $25,000 for minors, and coverage automatically ends when the child reaches the age of 18 to 25, depending on the company and policy. The child may be able to convert the term rider amount to their own policy without taking a medical exam.

Term life insurance

Available for teens 18 and older, term life insurance is cheaper than permanent life insurance. However, it only lasts for so long, up to 30 or 40 years, depending on the carrier. Once the policy term ends, coverage may be convertible to a permanent policy, but the rate will depend on the current age at conversion. This option is best for someone with temporary coverage needs, such as someone with student loans or a mortgage.

Permanent life insurance

Since it lasts a lifetime, permanent life insurance is usually the most expensive option. But it will allow your teen to lock in their rate and insurability when they are usually the healthiest. No matter what happens health-wise later on, they can continue with the same low rates, as long as the premium stays current. If a family history of genetic conditions could affect eligibility, permanent life insurance may be the best life insurance option for your teenager.

How to Buy Life Insurance for Teenagers

Buying life insurance for your teenager can help safeguard their financial future. To help you navigate the process, here's a step-by-step guide you can follow:

Assess coverage needs

Begin with a clear assessment of what financial support your teenager might need in the future. Consider the costs of higher education, potential health care needs and any other support they may require. This will help you determine the amount of coverage necessary to ensure their financial security.

Research policy options

Look into the different types of life insurance policies available. Term life insurance offers coverage for a set period, while whole life insurance provides lifelong coverage and may accumulate cash value. Choose the one that aligns with your teenager's long-term goals and your financial plan.

Compare quotes

Obtain quotes from multiple insurers to find the best rates and coverage options. This step can help you find the most cost-effective teen life insurance policy that doesn't compromise the coverage your teenager needs.

Consult a financial advisor

Talk to a financial advisor who can provide tailored advice based on your family's financial circumstances and goals. Although optional, taking this step can guide you to the right type of policy and amount of coverage.

Have the teen complete a health assessment

Most life insurance policies require a health assessment, which may include a questionnaire and a medical exam.

Review the policy details

Carefully review the terms of the policy, paying close attention to conversion options, benefits, exclusions and how the cash value may grow over time. Understanding these details ensures that the policy meets your expectations and needs.

Make the purchase

Once satisfied with the policy details and pricing, complete the purchase. Submit required documents and provide necessary information.

Common Mistakes to Avoid When Buying Life Insurance for Teenagers

When shopping for life insurance for teenagers, it's important to tread carefully to avoid missteps. Here's what to watch out for to ensure you choose the best life insurance for a teenager without making common mistakes:

Overlooking the future

When choosing life insurance for a teenager, anticipate their changing needs. Opt for a policy that offers the flexibility to adapt coverage as your teenager's life circumstances evolve, ensuring the policy remains beneficial in the long run.

Focusing solely on price

While finding an affordable premium is important, you should also consider the value and extent of coverage. A low-cost plan might not provide the comprehensive protection your teenager might need, so weigh the benefits against the price.

Neglecting health factors

Be thorough in disclosing health information. Omitting or misrepresenting health details can lead to issues with policy claims in the future. Accurate information ensures the policy is underwritten correctly, reflecting the true risk.

Forgetting to review the policy periodically

Life insurance needs can shift as your teenager grows. Regular policy reviews are necessary to adjust coverage in line with new milestones, such as starting college or entering the workforce, to maintain alignment with their goals and needs.

Misunderstanding policy terms

Understand the policy's terms and conditions thoroughly. Knowledge of what the policy entails, from benefits to limitations, ensures clarity during a claim and helps in making informed decisions about utilizing the policy's value effectively.

Who Can Purchase Life Insurance for a Teenager

Parents/Stepparents

Grandparents

Legal Guardians

The person purchasing life insurance for a teenager must show that they have a qualifying insurable interest in their life. That means the person insuring the teen will experience hardship or financial loss when the insured passes away. Most often, adoptive parents, legal guardians, parents, stepparents and grandparents can buy life insurance for children.

The owner or policyholder is usually the payor — the person responsible for paying the premiums — of a teenager's life insurance policy. Once the teen reaches the age of maturity, the policy ownership and payor status can transfer to the teen. Although the age of maturity in most states is 18, it's younger in some states. For example, a minor over 14.5 years old can own or sign an application for life insurance in New York.

Can a Teenager Get Their Own Life Insurance Policy?

A minor teenager cannot get their own life insurance policy. A minor cannot enter into a legal contract unless there is a legal exception, like in the New York example above. Teens aged 18 or 19 are considered adults, so they can get their own life insurance policy.

Whoever buys the teenager's life insurance policy is usually the policy owner. Once the teen becomes an adult, the parent, grandparent or guardian who owns the policy can either retain ownership or transfer ownership to the insured as a change of ownership or release of ownership transfer.

When releasing ownership of a teenage life insurance policy, the owner will sign the insurance company's change of ownership form to complete the transaction. As the owner, you are the only person who has control over the policy and can make changes, like removing cash value or changing a beneficiary. It's a good idea to release ownership to the teen once they are an adult, so they have full control over the policy with the ability to make changes as they see fit.

MONEYGEEK DICTIONARY

In this case, the release of ownership and change of ownership means the same thing. The owner transfers ownership of the policy to the insured teen, who is now an adult. This is an automatic provision in some policies, where ownership is automatically transferred to the teen when they turn 18. The owner agrees to this when they sign the initial contract. More commonly, the child becomes the owner when the original owner decides it’s time to transfer the policy and only after signing a form agreeing to the change.

Can Teenagers With Special Needs Have a Life Insurance Policy?

Teenagers with special needs can have a life insurance policy. While most life insurance for teenagers doesn’t require a medical exam, an insurer may consider the teen’s medical history for approval and rating purposes. Underwriters can examine the teen’s medical history, including a special needs diagnosis, to determine eligibility and policy cost. Depending on the medical condition, severity and other health concerns, the teen may not qualify for coverage or may pay a higher premium.

Caring for a special needs teen can be costly and emotionally and physically taxing. Buying life insurance for a special needs teenager can ease the burden by helping to cover medical treatments, final expenses and the hidden costs of grieving, like replacing a family member’s or caregiver’s lost wages while recovering from the loss.

Special Needs Medical Conditions That Can Qualify for Coverage

There are no special needs medical conditions that will automatically disqualify your teen from coverage. Qualifications can vary by policy type and the insurance company.

In most cases, teens with the following special needs medical conditions can qualify for life insurance coverage:

Autism
Cerebral Palsy
Down Syndrome

Working with a trusted life insurance agent or financial advisor can help you identify the best life insurance options for your special needs teen and their medical conditions.

How Much Life Insurance to Choose for a Teenager

Your needs and budget will determine the appropriate amount of life insurance for a teenager. Ask yourself what you want the life insurance to cover — whether it's to provide for funeral expenses, support ongoing childcare needs, contribute towards education costs or cover other financial obligations — and how much you can afford to pay in monthly premiums.

The larger the death benefit, the more expensive the premium. Once you consider your needs for your teenager’s life insurance coverage, make sure you can afford to pay the premiums for the duration of the policy. At a minimum, buy enough life insurance to cover funeral expenses for your teen. The average funeral costs $8,000 to $10,000, so consider this amount the minimum for life insurance for your teenager. If you can comfortably afford higher premiums, you can consider buying more coverage to meet other financial needs.

By thoughtfully assessing your coverage needs against your budget, you can select the best life insurance for your teenager that meets immediate financial requirements and supports broader financial planning goals.

Cost of Life Insurance for a Teenager

The cost of life insurance for a teenager depends on several factors, like the death benefit amount, plan type and insurance company you choose. Term life or a child term rider will be cheaper than permanent life insurance but offers limited coverage. A larger death benefit will offer more financial opportunity but comes with a larger payment. Each insurer has its own rating structure, so rates will vary by company.

It's also important to understand that life insurance rates depend on the people they cover. Several factors will influence the cost of life insurance for a teenager:

Health and Medical History

Insurers often reward a clean bill of health with lower premiums, reflecting the reduced risk they take on. Conversely, existing health issues can elevate premiums, as insurers account for the increased likelihood of a claim.

Lifestyle and Hobbies

Engaging in high-risk activities such as extreme sports can significantly increase premium costs. Insurers consider these hobbies as increasing the probability of injury or death, which in turn raises the risk they would need to insure.

Gender

Typically, policies for females may cost less due to their longer average lifespan, which spreads the risk over a more extended period.

Policy Type and Term Length

Term life insurance, which covers a specific period, often comes with lower premiums compared to whole life insurance, which offers lifelong coverage. The duration of the term policy also influences the cost; longer terms usually mean higher premiums.

Coverage Amount

Opting for a higher death benefit translates to a greater financial risk for the insurer, which is offset by charging higher premiums.

Family Medical History

If there is a history of chronic or hereditary diseases in the family, insurers may consider a teenager at higher risk for similar conditions and adjust premiums accordingly, even if the teen is currently healthy.

Pros and Cons of Buying Life Insurance for a Teenager

Before purchasing life insurance for a teenager, weigh the advantages and disadvantages. While life insurance for teenagers can guarantee their insurability and provide for potential funeral and medical expenses, it’s also a long-term commitment that may not align with every family’s financial goals.

Pros of Buying Life Insurance for a Teenager

Guarantees insurability

Once the teenager’s life insurance policy is approved and issued, their insurability is locked in. Once they reach specific ages, the owner can buy more life insurance without a medical exam or health questions. This is a great way to ensure your teen can get affordable life insurance coverage as an adult, especially if there are known genetic or hereditary conditions that could prevent it in the future.

Jumpstarts a savings vehicle/college fund

Permanent life insurance includes a cash value savings account, which you can tap into later. The cash value will grow over time and can be used for college expenses or when making the next step in life, like buying a house or getting married.

Doesn't require medical exam

Teens rarely have to take a medical exam, while adults usually do. A medical exam can uncover conditions that could prevent them from getting approved for life insurance as an adult. The earlier you secure life insurance for your child, the less likely their health will impact their life insurance approval or premium.

Provides funds for medical and funeral expenses

Medical and funeral costs can be expensive. Your finances could take a major hit if something happens to your teen. Having life insurance for your teenager can help remove the financial pressure, allowing you to plan a funeral and possibly pay off medical bills without affecting your family’s budget.

Offers lower premium

Children and teens are the least expensive people to cover with life insurance. Locking at a low rate on whole life insurance for a teenager can ensure the policy will meet your current budget. If you transfer ownership once they’re an adult, a lower premium will usually fit into their budget, even as a young adult.

Provides tax-deferred growth

Another benefit to buying cash value life insurance is that it grows tax-deferred. A whole life insurance policy offers a guaranteed interest rate, while a universal life policy may have a guaranteed minimum with varied interest. Even if you take out some of the cash value, it may not be taxed as income, depending on the policy setup and withdrawal amount.

Gives time and resources to recover and grieve

Losing a child is a parent’s worst nightmare. Although it’s normal to need time to grieve and recover from losing a family member, the devastation that comes with losing a child may require a longer recovery. Having life insurance for a teenager can provide financial help to allow the family the time and resources they need to grieve and recover.

Cons of Buying Life Insurance for a Teenager

Although there are several benefits to buying life insurance for a teenager, it’s not the right choice for every family. There are usually lower caps on coverage, the commitment is long term and there is a financial trade-off that might not make it worth buying.

Low rate of return

Although permanent life insurance offers cash value growth, the rate of return is usually low compared to other savings vehicles. Depending on the interest rate, you may be better off putting the premium in a savings account or other investment vehicle for a better return rate.

Low coverage limits

There are usually low coverage limits when buying life insurance for teens. Depending on the company, you may only have the option to buy $25,000 or $50,000 in coverage, which might not be enough to meet your needs.

Long-term commitment

Permanent life insurance is a long-term commitment. Your teen could live for another 70 or 80 years, or even more, and have to pay into the policy the entire time. If factors affect their budget enough, it may mean canceling the policy to avoid maintaining the payments. Buying a limited-pay whole life insurance policy may be the best option, as it only requires payments for a certain number of years before it’s paid in full.

Financial trade-off

When you buy life insurance for a teenager, it takes money from the family’s budget. The premium can’t go into savings or other resources, which could cause unnecessary suffering in a dire financial situation. The money may be better spent elsewhere, like an education savings account.

Alternatives to Life Insurance for Teenagers

If the potential for savings is a factor, there are alternatives to teen life insurance that may be more beneficial.

529 plan

A 529 plan is a tax-advantaged saving plan your child can use to pay for K–12 tuition, apprenticeship programs or college. Each state has a 529 plan, which can differ in fees and other benefits or drawbacks. There may be fees for enrollment, administration and asset management. Qualified withdrawals are federal income tax-free and may be state income tax-free, depending on the state. This plan is best for kids planning to pursue an apprenticeship or higher education or who need funds to pay for primary or secondary school education.

Education savings account (ESA)

A Coverdell ESA is a custodial or trust account to pay for qualifying education expenses, similar to a 529 plan. You must be under the adjusted gross income limit each year to qualify for a maximum amount of $2,000 annually, and contributions are not tax deductible. Distributions are tax-free as long as they don’t exceed the student’s qualified education expenses for the tax year. An ESA is best for parents wishing to fund elementary or secondary school tuition and education expenses.

Uniform gift to minors act (UGMA)

With a UGMA account, parents can gift cash, bonds, stocks or mutual funds to the trustee account. The first $15,000 in annual gifts are federal income tax-free, but anything over that will be taxed at the minor’s tax rate. The child will become the sole owner when they reach 18 or 21, depending on the state. The custodian can use the funds for the child’s welfare or education, but the funds are not limited to education expenses like the first two. Since the account is the minor’s, it can affect financial aid eligibility.

Self-savings

Another option is self-savings through a traditional savings account, investment account or a Roth IRA. The parent or guardian sets up the account for the child and can set aside the amount without ties, limitations or taxes. Although savings and investment accounts rarely have tax implications, withdrawing earnings from an IRA before age 59½ can have tax consequences. This option is best for high-income earners.

FAQ: Life Insurance for Teenagers

Although buying life insurance for teenagers isn’t for everyone, it’s a great option for some. Here are answers to some of the most commonly asked questions about the topic.

What happens to the life insurance policy once a teenager becomes an adult?

The teenager's life insurance policy may be transferred to the teenager, who is now an adult. Or the policy owner, who is the parent, grandparent or guardian, may opt to remain the policy owner.

Do teenagers need to take medical exams for life insurance?

No, teenagers rarely need to take medical exams for life insurance. However, there are exceptions, which can vary by carrier and product type. Even if there is no medical exam requirement, insurers may look at the teen’s medical history and the history of immediate family members to determine eligibility and rating class.

Can a teenager be declined life insurance coverage?

Yes, any individual can be declined life insurance coverage, including a teen or child. A severe medical condition or any other reason can disqualify a teen from coverage.

What’s the best age to apply for life insurance for a teenager?

The best age to apply for life insurance for a teenager is now, if you haven’t already purchased a policy. The older your teen gets, the more expensive life insurance is, and the more chance they could develop a medical condition or another issue that could disqualify them from coverage or cause the premium to be higher for the policy's duration.

Who are the beneficiaries of a life insurance policy for teenagers?

Anyone with an insurable interest can be named a beneficiary of a teenager’s life insurance policy. This can be a parent, guardian, stepparent, adopted parent or grandparent. Outside of these relationships, the person must show hardship or financial loss if the teen were to die to be eligible as a beneficiary on their life insurance policy.

What is the best life insurance for teenagers?

The best life insurance for teenagers often includes a permanent policy or adding a child rider to a family plan, providing affordable premiums, guaranteed insurability and the possibility for cash value accumulation. These options are designed to secure the financial future of teens and young adults efficiently.

Although term life insurance presents another avenue, there's typically a minimum age for life insurance requirement. It may only be a viable choice of life insurance for 18-year-old or 19-year-old teens. This type of policy can offer a more cost-effective solution for families seeking temporary coverage aligned with specific financial goals or obligations.

What are four (4) ways that life insurance for teenagers can be helpful?

Life insurance isn't just for adults; it may also offer significant benefits for teenagers. Here are four ways that life insurance for teenagers can provide essential advantages:

Guaranteed Insurability: Life insurance for teenagers ensures future insurability, allowing additional coverage later without medical reassessment, even if health conditions change.
Financial Support: Life insurance for a teenager offers crucial financial relief for unexpected medical and funeral expenses, reducing stress during difficult times.
Investment Growth: Policies often include a cash value component, providing a tax-deferred investment opportunity that benefits from compound growth over the years.
Affordable Premiums: Teenagers' life insurance usually features lower premiums, making it a cost-effective choice for comprehensive long-term coverage.

About Mandy Sleight

Mandy Sleight is a licensed property, casualty, life and health insurance agent with 20 years of experience in the industry. She has worked for major insurance companies like State Farm and Nationwide, and most recently as the Operations Coordinator for a startup employee benefits company.

Sleight holds a business administration and management degree from the University of Baltimore and a master's in business administration from Southern New Hampshire University. She uses her vast knowledge of insurance and personal finance to create easy-to-understand and engaging content to help readers make smarter choices with their budgets and finances.

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