Although all life insurance policy types can cover teens, not all policies are fit for teenagers. When looking for the best life insurance for a teenager, consider factors like age limits, policy terms, price changes and whether the policy builds cash value. Then, compare various life insurance policy types and products to find the option that best fits the teenager’s life insurance needs, preferences and budget.
Table of Contents
- Factors in Choosing the Best Life Insurance Policy for a Teenager
- What Type of Life Insurance Will Cover a Teenager?
- Who Can Purchase Life Insurance for a Teenager?
- How Much Life Insurance Should I Choose for a Teenager?
- What Is the Cost of Life Insurance for a Teenager?
- Pros & Cons of Buying Life Insurance for a Teenager
- Alternatives to Teenager Life Insurance
- Frequently Asked Questions
Key Takeaways
Premiums are cheaper the younger and healthier the teenager is when taking out a life insurance 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
When choosing the best life insurance policy for a teenager, assess not only the company’s policy offerings to see which best fit your budget and needs but also its ratings.
Comparing these factors can help you find the right fit for your teen’s life insurance:
Policy terms
There are two types of life insurance policies, term and permanent. A term policy lasts for a set amount of time, usually 10 to 30 years. Permanent life insurance lasts for the teen’s lifetime and can be transferred to them as an adult.
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 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
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 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:
What Type of Life Insurance Will Cover a Teenager?
The best type of life insurance for a teenager is permanent life insurance or a child term 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 your teenager, but it has its 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 option.
Who Can Purchase Life Insurance for a Teenager?
The person purchasing life insurance for a teenager must show 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, grandparents, legal guardians, parents and step-parents can buy life insurance for children.
The owner is usually the payor, or 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 can not enter into a legal contract unless there is a legal exception, like in the New York example above. Teens who are 18 or 19 are considered adults, so they can get their own life insurance policy if they choose.
Whoever buys the teenager’s life insurance policy is usually the owner of the policy. 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, 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.
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.
In this case, release of ownership and change of ownership mean 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?
Yes, teenagers with special needs can have a life insurance policy. While most life insurance for teens policies don’t require a medical exam, an insurer may consider the teen’s medical history for approval and rating purposes. Underwriters can look at the teen’s entire 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. 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.
In most cases, teens with the following special needs medical conditions can qualify for life insurance coverage:
- Autism
- Cerebral Palsy
- Down Syndrome
How Much Life Insurance Should I Choose for a Teenager?
How much life insurance you should choose for a teenager depends on your needs and budget. Ask yourself what you want the life insurance to cover (funeral costs, childcare expenses, education, etc.) 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 teen’s life insurance coverage, make sure you can afford to pay the premiums for the duration of the policy. At 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.
What Is the 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.
To give you an idea of how much life insurance for a teenager costs, we calculated some average rates. For $20,000 to $50,000 in coverage, the average child premium is between $5 and $38 per month. The cheapest young adult insurance premium is $12.15 per month for $250,000 in coverage and $18.28 monthly for $500,000 in life insurance.
Although individual factors will determine the final cost, it’s safe to assume premium costs are similar to a young adult. You can budget for a higher amount with the understanding it could be less for your teen.
Compare Life Insurance Rates
Ensure you are getting the best rate for your insurance. Compare quotes from the top insurance companies.
Pros & Cons of Buying Life Insurance for a Teenager
Before deciding if buying life insurance for teens is the best choice, consider the pros and cons. Although life insurance can guarantee their insurability and provide for funeral and medical expenses, it’s a long-term commitment and may not be in the family’s best financial interests.
Pros of Buying Life Insurance for a Teenager
It’s easy to apply for life insurance for a teenager and get approval at a cheap rate, which can protect them from high rates or denial in the future if they develop a genetic medical condition.
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.
No medical exam required
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 a life insurance policy in place can help remove the financial pressure, allowing you to plan a funeral and possibly pay off medical bills without affecting your family’s budget.
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.
Tax-deferred growth
Another benefit to buying cash value life insurance is 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 when taking 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 Teen Life Insurance
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 maybe 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 have to 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 child’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. Depending on the state, the child will become the sole owner when they reach 18 or 21. 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, whether 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 from an IRA before age 59½ can have tax consequences. This option is best for high-income earners.
Frequently Asked Questions
Although buying life insurance for a teen 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.
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About Mandy Sleight, Licensed Insurance Agent
sources
- AM Best. "AM Best." Accessed March 2, 2023.
- Fitch. "Insurance Insights Roadshow: 2023 & Beyond." Accessed March 2, 2023.
- Moody's. "Moody's." Accessed March 2, 2023.
- New York Department of Financial Services. "Re: Minors as Owners, Beneficiaries and Donees of Life Insurance Policies." Accessed March 2, 2023.
- Standard & Poors. "S & P global ratings: Insurance." Accessed March 2, 2023.