As a parent, your instinct is to protect your child from significant threats. The idea that a child could die prematurely is something we look to avoid, and yet it happens every day. Childhood illness, accidents, etc., leave families with grief and mounting costs for end-of-life arrangements.
That's where child life insurance can help. Knowing the drawbacks and benefits of insurance for your children will help you determine whether this policy is right for your family.
The purpose of child life insurance
Child life insurance pays the beneficiary a fixed death benefit if the insured child dies. You may use the proceeds for funeral and burial costs as well as other expenses after your child dies.
Life insurance for children offers direct benefits to the child. Insuring your children early can guarantee that your child qualifies for life insurance in the future. In addition, whole life insurance comes with a saving component that grows your policy's value for future financial goals.
Types of child life insurance policies available
Insurance companies sell child life insurance as a term rider or a standalone, whole life insurance policy. Understanding the differences between both options will ensure you choose the right one for your financial situation and family's needs.
Whole life insurance for children
Whole life insurance covers your children for their entire lives and guarantees a death benefit. It also offers a cash value component, which saves a portion of your premium to increase the policy's value over time. However, the cash value component, guaranteed benefit, and lifelong protection often make this one of the most expensive policies.
Term riders on parent policies
Another way to insure your children is through a child term rider. This rider is added to your insurance policy at an extra fee, but it's often more cost-effective than a standalone policy. It also provides coverage for all your children—current and future.
Term life insurance riders for children are often convertible, meaning your child can convert the rider to a permanent life policy when they become adults.
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Child life insurance benefits
Guaranteeing future insurability
One of the primary benefits of child life insurance is that it guarantees your child qualifies for life insurance in the future, provided that they maintain continuity in coverage. This benefit is valuable if you're worried about your child developing genetic conditions, such as diabetes, that may affect their insurability down the line.
If you intend to ensure your child has life insurance options as an adult, verify your child rider or policy can be fully converted into adulthood. You should ask about guaranteed conversion, just in case.
Financial support in case of unforeseen tragedy
The death of a child is heartbreaking. Any expenses incurred due to their death certainly don't alleviate the added stress. Life insurance for your child mitigates this financial burden. Besides end-of-life expenses, child life insurance can also cover:
- Counseling
- Medical debt
- Loss of income from work leave
- Charitable donations or memorial funds
Building a financial foundation
The cash value feature of whole life insurance allows your child to get a head start on future financial goals. When your child becomes an adult, they can withdraw or borrow from their policy to pay their college tuition or put a down payment on their first home.
Child life insurance drawbacks
Additional long-term cost
An obvious downside of buying more insurance is the additional cost for an extended amount of time. If you can't afford the premiums or your adult child doesn't want to take over the payments when they become an adult, the policy could lapse or end. This means life insurance beneficiaries no longer receive a death benefit and your child won't have access to their savings.
Subpar investment vehicle
If you're looking for a wealth-building tool or savings vehicle for your child, a child life insurance policy usually not the most effective choice. The available whole life policies are small, with limited (if any) options for early withdrawal, more aggressive investing, etc. High-yield savings accounts and other savings vehicles will generate greater returns and offer greater access to money when needed.
If you're shopping for a savings vehicle for your child, we recommend talking to a certified financial planner. Prudential certified financial planner and life insurance specialist Barbara Pietrangelo told Business Insider that life insurance for children "is also marketed as a savings vehicle for parents, but there are better options to put away money for the future."
Cost of child life insurance
If you're buying a term rider, its cost should be considered in the context of your entire life insurance policy. Discounts may offset the cost of the rider, and the whole package may offset individual costs. In short, if you remove the rider, does it raise the cost of life insurance in contrast to its value?
If you're buying your child a whole life insurance policy, the rates may be similar to those of a guaranteed life insurance policy for seniors. Pietrangelo estimated that a $100,000 policy for a 4-year-old girl could cost as little as $25 per month, or basically $5 per week.
Business Insider looked at a few quotes for a $50,000 child life insurance policy for a 3-year-old girl in Virginia and didn't see any policies worth more than $75,000. Here are a few sample quotes we were able to pull:
| Company | Medical Exam Required | Monthly Premium |
| Mutual of Omaha Life Insurance | No | $16.00 |
| Gerber Life Insurance | No | $34.67 |
| American Family Life Insurance | No | $27.91 |
Making the decision
Assessing your family's situation
Taking care of your child's needs isn't cheap, and purchasing insurance is an extra cost in the budget. So, it's important to weigh the pros against the cons based on your family's circumstances.
If your child is in good health and isn't predisposed to severe heredity conditions that may impact their future insurability, it's likely fine to forgo insurance. Instead, preventative care ensures your child maintains their health and their insurability when they become adults.
If you're not sure if life insurance is right for you, consult a financial advisor. They'll assess your financial picture to determine whether life insurance is a sensible investment to include in your portfolio and if you can afford it.
Purchasing life insurance for children
You can buy child life insurance online from a life insurance company or a licensed life insurance agent. The online tool we used limited child life insurance coverage to $50,000. However, it is possible that an agent can get you a higher policy amount. For example, Pietrangelo was able to find quotes for $100,000.
It is best to shop for the best rates and ask your current life insurance provider if they have child life insurance plans and if they offer any discounts for existing customers.
Who can buy child life insurance?
Life insurance companies sell child life insurance policies for children as young as two weeks old. Policies can stay active, in most cases, until the child turns 18. At that point, life insurers would expect the now adult insureds to convert the child rider to a full adult policy. Some companies are willing to offer guaranteed conversion. If you're unsure, always check with the company quoting your policy.
Parents, legal guardians, and sometimes grandparents are eligible to purchase policies or riders on behalf of the insured children. So despite what some might worry about, a random party cannot buy life insurance for a child with only a limited or tenuous connection.
Who cannot buy life insurance for children?
Outside of strangers or others without sufficient familial ties, children with known disabilities and other medical conditions may not qualify for coverage. For example, a parent cannot buy a policy after a childhood leukemia diagnosis. As such, Gerber Life was slammed in 2018 for featuring a "spokesbaby" with down syndrome when the baby would not qualify for its coverage.
Just as it would with adult life insurance, life insurers are looking for signs of risk. Known illnesses, congenital disabilities, and other disabilities are clear signs of risk. Some life insurance companies may be more flexible, but parents should expect higher monthly premiums and lower death benefits for those policies.
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$19 for males and $16 for females per month
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- Term life and whole life
FAQs
Is life insurance for children a necessary investment?
Whether or not life insurance for a child is necessary depends on your family's circumstances. While life insurance for children provides financial security and future insurability, it's important to consider your household's immediate financial needs and goals.
What are the main advantages of child life insurance?
Key advantages of child life insurance include ensuring future insurability and potential cash value growth that can be used for future expenses like education or a home down payment.
Can purchasing life insurance for my child help them financially in the future?
Yes, purchasing life insurance for your child can help them in the future. Whole life insurance for children offers a cash value component, which increases the policy's value over time. Your child can access the policy's cash value in adulthood to pay for future expenses.
What are some alternatives to child life insurance?
It depends on your goals. Alternatives for child life insurance can include investing in a 529 plan for education, investing in a taxable brokerage account for long-term savings goals, or a high-yield deposit account for short-term savings goals.
How do I choose the right life insurance policy for my child?
The right life insurance policy for your child depends on a variety of factors, but it ultimately comes down to your budget. If you want affordable insurance for your child, opt for a convertible term life children's rider to your own policy. If you can afford to buy a whole life policy with extra perks, it may be worth the cost. If you need help, work with a financial advisor as they're equipped to provide professional and personalized guidance.
