Buying Life Insurance for Your Children: Pros, Cons & Alternatives

If you have a family health history that could lead to a chronic, genetic or hereditary illness in your child, buying life insurance for them may be worthwhile, as the condition may affect their future insurability.

Life insurance policies for your children allow you to afford some time off work following the potential loss of a child and can also help you build cash value that grows tax-free to set your child up for life. Child life insurance policies can be an additional tax-deferral tool if used correctly.

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Last Updated: 9/10/2022
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Purchasing a life insurance policy for your children is often misunderstood. With this type of policy, you are the beneficiary, not your child. The death benefit from this policy allows you to take time off to grieve following a potential child loss.

Child life policies can also be used, in addition to other savings vehicles like registered education savings plans (RESP), as a tax-deferral mechanism to help safeguard your child’s future.

These policies are cheap, costing an average of $2 per month, but also typically have a lower coverage amount of under $75,000. It’s important to remember that a life insurance policy taken out under your child’s name is different from a policy for which your child is the beneficiary.

With a child life insurance policy, you would receive money if your child dies. If you take out a life insurance policy for yourself, you can list your child as the beneficiary, which can help protect your child from financial burdens if something happens to you.

What is child life insurance?

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Key Takeaways

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If your child has a higher mortality risk, child life insurance helps lessen the financial burden of final expenses and funeral costs.

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The savings account portion of child life insurance policies can be helpful for your child’s future since it’s a tax-deferred way to grow savings.

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While a child life insurance policy can be a smart financial move, there may be better investment solutions to explore before you turn to such a policy.

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Pros & Cons of Buying a Life Insurance Policy for Your Child

There are several benefits to purchasing a life insurance policy for your child, including deferring taxes and ensuring that you’ll have the financial means to take time off to mourn if you were to lose a child. However, it may not be the best fit for everyone.

Pros & Cons of Buying a Life Insurance Policy for Your Child

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PROS
  • Funeral funds: A child life insurance policy can be used to cover the cost of funeral expenses.
  • Guaranteed insurability: Even if your child develops a health condition later in life, they’re guaranteed to have coverage as long as you continue to pay the premiums.
  • Locked-in rates for life: Child life insurance typically takes the form of a whole life insurance policy, with rates that are locked in for life.
  • Cash value: The cash value of your child’s life insurance policy will grow over time and is a tax-deferred vehicle for additional savings.
  • Simplified underwriting: Child life insurance policies typically have simplified underwriting with fewer requirements.
  • Low premiums: A life insurance policy for your child can cost as little as a few dollars a month, making it an affordable way to protect yourself and plan for the future.
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CONS
  • Better investment solutions elsewhere: While child life insurance policies are one way to invest your money, you may find solutions that offer a higher rate of return.
  • Lifetime commitment: A whole life insurance policy is a lifetime commitment, which means that you’ll only maintain coverage if you continue to pay the premiums each month.
  • Low coverage amounts: Unlike adult life insurance policies, which typically have coverage in the hundreds of thousands, child life insurance policies typically have a coverage amount of under $75,000.

Because of the low cost and simplified underwriting process, it’s usually fairly simple to take out a life insurance policy for your child. Such a policy can help provide a financial cushion in the event you experience a loss and can also be a way to grow tax-deferred savings.

That said, child life insurance policies aren’t the best fit for everyone. There are often more effective ways to invest in your child’s future. If you already have a healthy amount of savings, you may not need the financial security that such a policy provides.

Reasons to Buy a Life Insurance Policy for Your Children

There are a few reasons you might consider purchasing a child life insurance policy, including providing a financial safety net for you to grieve after the loss of a child, investing in your child’s future and growing savings tax-deferred.

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    Cash value

    Like other types of whole life insurance, a whole child life insurance policy has a cash value that grows over time, which means that they’re one way you can invest in your child’s future. The cash value can be borrowed against or withdrawn to cover costs like college tuition.

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    Guaranteed insurability

    By purchasing a whole life insurance policy for your child when they’re young, you guarantee that they’ll have insurance coverage when they’re older as long as you continue to pay the premiums. This is true even if they develop health conditions later in life.

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    Locked-in rates for life

    Child life insurance policy premiums tend to be low, costing just a few dollars a month. These rates are locked in for life, which means that purchasing life insurance for your child is a relatively low-cost way to plan for their financial future.

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    Funeral funds

    While many people purchase life insurance for their child to be part of a savings strategy, it also provides a financial cushion as a parent if you lose a child. This policy can help you cover final expenses and take time off to grieve.

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MONEYGEEK EXPERT TIP

Looking for a life insurance policy for your child? We analyzed the best life insurance policies for children to help make the decision easier.

Reasons Not to Buy a Life Insurance Policy for Your Children

While there are several benefits of purchasing a life insurance policy for your child, it may not be the best fit for everyone. There are often more efficient savings and investment vehicles available, and such a policy may not be necessary if you already have significant savings.

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    It’s a lifelong commitment

    Child life insurance typically takes the form of a small whole life insurance policy, which covers your child for life. However, there’s a catch: to continue coverage, you need to continue paying your monthly premiums. While child life insurance is relatively inexpensive, it’s still a lifelong financial commitment you may not always want.

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    Better investment solutions elsewhere

    A life insurance policy is one way to invest in your child’s future, but there are often better investment opportunities. These include:

    • 529 savings plans: These plans allow you to save for your child’s future educational expenses, and funds can be withdrawn tax-free.
    • Custodial accounts: Custodial accounts can be used by parents or grandparents to save and invest on their child’s behalf.
    • IRA accounts: If your child earns income, they can open an IRA to begin saving for retirement.
    • Your retirement accounts: While investing in your child’s future is a worthy goal, you should also consider investing in your retirement accounts. In retirement, you can use these funds to continue supporting your children or pass wealth down to them.
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    You aren’t insured yet

    Before you purchase a life insurance policy for your child, you should ensure that you are insured. Some life insurance companies require that you be insured before you can buy coverage for your children. Plus, purchasing a life insurance policy for yourself can help ensure that your children are provided for if you die.

While some people purchase child life insurance policies to lessen the financial burden of a child’s passing, many also use them to secure their child’s future by using these policies as part of an overall savings strategy.

These policies have a tax-deferred cash value that continues to grow over time, and they also provide inexpensive, permanent insurance coverage for the rest of your child’s life.

Alternatives to Life Insurance for Children

Depending on your goal, there are several better options than a child life insurance policy. Whether you aim to secure a death benefit in the event of a worst-case scenario or invest in your child’s future, various alternatives may better serve your needs.

Alternative Investment Vehicles for Your Child’s Future
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  • Child Life Insurance Rider

    A child life insurance rider is similar to a whole life insurance policy for your child but is typically cheaper. Child life insurance riders usually take the form of add-on term life insurance that can be converted to permanent insurance when your child is older. Suppose you’re primarily interested in providing yourself with a financial cushion to help you weather the potential loss of a child. In that case, a child life insurance rider serves the same purpose as a separate child life insurance policy, but often at a fraction of the cost.

  • 529 College Savings Plan

    If you’re looking to invest in your child’s future, a 529 college savings plan is a great way to do so. This type of plan can only be used for educational expenses, but if your children go to college, it can be a great way to get a head start on saving to cover the cost of college tuition. Plus, funds can be withdrawn tax-free.

  • Registered Education Savings Plan (RESP)

    Like 529 college savings plans, a registered education savings plan (RESP) can be used to cover educational expenses. This kind of plan is sponsored by the Canadian government and is only available to Canadian citizens. The government typically matches contributions up to a certain percentage. While withdrawals are taxed, students who withdraw funds while in college typically have a minimal tax burden since their income is often low.

  • Custodial Account

    Custodial accounts are yet another way parents and grandparents can invest in their child’s future and provide them with a financial safety net. Funds can be withdrawn at any time as long as they benefit the child, and there are no income limits, contribution limits or withdrawal penalties. Depending on where you live, funds in a custodial account will be transferred to your child’s control when they turn either 18 or 21.

  • IRA Savings Account

    If your child currently earns an income, they can open an IRA savings account. They can choose between a traditional IRA, which is tax-deferred, or a Roth IRA, which is taxed up front but offers tax-free withdrawals for retirement. Children can contribute up to the amount that they have earned working, but contributions can’t exceed their overall income. Since children typically have a lower income and are taxed at a much lower rate, this investment vehicle can provide serious savings in the long term.

  • Your Retirement Accounts

    While it’s a noble impulse to want to invest in your child’s future, you shouldn’t neglect your retirement accounts. Investing in your retirement by contributing to a 401(k) or IRA can help to ensure that you can cover your expenses in retirement, which can lessen the financial burden on your children. It can also be another way to continue to grow your savings so that you can pass them down to your children in the future.

While child life insurance is one way to invest in your child’s future, it’s far from the only one. When possible, it’s often a good idea to allocate a percentage of your portfolio to higher-risk investments, like stocks.

Although these investments are more volatile, they typically yield better returns in the long run. If you have questions about your investment strategy, you may want to speak with a financial advisor to ensure you’re on the right track.

Can You Buy Life Insurance for a Newborn Child?

It’s possible to purchase a life insurance policy for your newborn for only a few dollars a month. A life insurance policy for your baby is one way that you can begin to grow savings for them, although it’s not the only one. It’s impossible to purchase a life insurance policy before your child is born since life insurance coverage doesn’t apply to an unborn baby.

Insurance Rates

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Frequently Asked Questions About Life Insurance for Your Children

Child life insurance can sometimes be confused with adding your child as a beneficiary on your own life insurance policy. We’ll cover some common questions and concerns about buying life insurance for a child.

About the Author


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Margaret Wack is a freelance writer who covers insurance, saving, investing, banking, and more. Margaret earned a bachelor's degree in classics, comparative literature, and poetry from Smith College and a master's degree from St. John's College.