Buying Life Insurance for Children


Updated: October 3, 2024

Advertising & Editorial Disclosure

Consumers often misunderstand the purpose of life insurance for children. While the primary role of life insurance is income replacement, children don't generate income, making the decision multi-faceted. In a child life insurance policy, you, the parent, serve as the beneficiary, not your child. The death benefit from such a policy provides financial support in the unfortunate event of a child's passing.

These policies can also complement other financial planning tools like 529 college savings plans, acting as a tax-deferral mechanism to secure your child's future. It's worth noting that life insurance policies for children are typically affordable relative to adult policies but tend to offer lower coverage amounts.

Key Takeaways

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

The cash value portion of a child life insurance policy can be helpful for your child’s future because it is a tax-deferred way to grow savings.

While a child life insurance policy can be a smart financial move for some, there may be more suitable investment solutions to explore first.

Understanding Child Life Insurance

Child life insurance is a specialized financial product that offers a death benefit in the unfortunate event that the insured child passes away. These policies are most commonly structured as whole life insurance, which means they come with a cash value component that accumulates over time. Ownership of the policy generally falls under the control of a parent, grandparent or legal guardian. Some providers offer coverage for children as young as 14 days old, making these policies accessible from an early age.

The primary objective of child life insurance is to alleviate the financial burden of funeral expenses and other immediate costs that may arise after the tragic loss of a child. However, the policy's cash value feature can also be a long-term savings vehicle. Over time, this cash value can grow, providing a financial cushion that the child can tap into later in life for various needs, such as education or a down payment on a home.

Life insurance for children is flexible, allowing for future financial planning without focusing on a cash value component, making it a straightforward protective measure.

Pros and Cons of a Child Life Insurance Policy

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 and Cons of Buying Life Insurance for Children

PROS
  • Funeral Funds: You can use a child life insurance policy to cover funeral expenses.
  • Guaranteed Insurability: Even if your child develops a health condition later in life, they’re guaranteed 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, making it 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.
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, meaning you’ll only maintain coverage if you continue to pay the monthly premiums.
  • Low Coverage Amounts: Unlike adult life insurance policies, which typically have coverage in the hundreds of thousands, child life insurance policies usually have a coverage amount of under $75,000.

Because of the low cost and simplified underwriting process, taking out a life insurance policy for your child is usually relatively straightforward. Such a policy can 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 such a policy provides.

Reasons to Buy Child Life Insurance

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, whole life insurance for kids has a cash value that grows over time, allowing you to 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 they’ll have insurance coverage when they’re older as long as you continue to pay the premiums. This is a significant advantage of whole life insurance for children, ensuring they remain insured 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 as 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 and the best life insurance policies for teenagers to help make the decision easier.

Reasons Not to Buy Child Life Insurance

While purchasing a life insurance policy for your child has several benefits, it may not be the best fit for everyone. There are 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 that covers your child for life. However, there’s a catch: you need to continue paying your monthly premiums to continue coverage. 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: A 529 savings plan allows 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. They also provide inexpensive, permanent insurance coverage for the rest of your child’s life.

How to Buy Child Life Insurance

Purchasing life insurance for your child involves several steps, each requiring careful consideration. From choosing the right policy type to understanding the cost implications, here's a step-by-step guide to help you navigate the process.

1
Assess Your Financial Situation

Before diving in, evaluate your current financial standing. Ensure you have adequate life insurance for yourself and have addressed other financial priorities.

2
Research Policy Types

Understand the types of life insurance policies available for children, typically whole life insurance, and what each offers in terms of coverage and benefits.

3
Compare Quotes

Obtain quotes from multiple life insurance providers to get a sense of the market rates and offerings.

4
Review Policy Features

Examine the policy's features, including the death benefit, premium rates and cash value growth.

5
Complete the Application

Fill out the application form, which usually involves answering health-related questions about the child.

By following these steps, you can make an informed decision when choosing the best life insurance for children tailored to your family’s needs and financial goals.

Cost of Buying Life Insurance for Children

Life insurance premiums vary due to individualized factors. Understanding the cost of child life insurance involves considering various factors that can influence the premium rates. These factors range from the child's age to the type of policy and additional features you may want to include.

  • Child's Age: Premiums are generally lower for younger children. Starting a policy at a young age can be a cost-effective strategy, as rates are locked in and remain constant as the child ages.
  • Policy Type: Whole life insurance policies usually come with higher premiums compared to adding a child rider to a parent's existing term policy. The latter can be a more budget-friendly option.
  • Coverage Amount: The size of the death benefit directly impacts the premium. A higher death benefit will result in a higher premium, so consider your financial needs carefully.
  • Health Factors: Although most child life insurance policies don't require a medical exam, some may include a health questionnaire. The answers could potentially influence the premium rates.
  • Riders and Add-ons: Opting for additional features like accelerated death benefits or premium waiver riders will add to the policy's overall cost. Evaluate the utility of these add-ons in relation to their cost.

Carefully evaluating these factors can help you find the best life insurance for your child that meets your financial requirements and provides the desired security for your family.

Alternatives to Life Insurance for Children

Depending on your goal, your family may have 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. If you’re primarily interested in providing yourself with a financial cushion to help you weather the potential loss of a child, 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 child goes 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 another way parents and grandparents can invest in their children's or grandchildren'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 18 or 21.

IRA Savings Account

If your child 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 upfront but offers tax-free withdrawals for retirement. Children can contribute up to the amount 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.

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.

Buying Life Insurance for Newborns

It's possible to purchase a life insurance policy for your newborn for only a few dollars a month. Such a policy not only provides a financial safety net in the tragic event of a child's passing but also serves as a savings vehicle for your baby's future. It's important to note that life insurance coverage does not apply to an unborn child and can only be purchased post-birth.

Purchasing life insurance for a newborn has its own set of implications. One key advantage of newborn life insurance is the ability to lock in low premium rates from the get-go, which remain constant as the child grows older. This early start also guarantees the child's future insurability, irrespective of any health issues that may arise later in life.

When considering newborn life insurance, make sure you weigh this decision against other financial priorities and savings options, such as a 529 college savings plan, to ensure a balanced financial strategy for your child's future.

FAQ About Buying Life Insurance for 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.

What is child life insurance?
Should you buy life insurance for your children?
What are the pros and cons of buying life insurance for your children?
Can you buy life insurance for a newborn baby?
What kind of life insurance product covers children under their parents’ policy?
How old do you have to be to get life insurance?
Should you buy whole life insurance for your child?

About Mark Fitzpatrick


Mark Fitzpatrick headshot

Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.