Life Insurance for Children: What You Need to Know

If you’re a parent or grandparent thinking about the future of your children or grandchildren, you might be considering life insurance as a way to provide early financial protection.

While it might seem unconventional to buy life insurance for a child, there are many reasons to consider it. From locking in low premiums at a young age to ensuring future insurability, child life insurance policies can be a valuable tool for securing a child’s financial future.

Let’s explore what you need to know about purchasing a life insurance policy for a child and how it works.

What is Life Insurance for Children?

Life insurance for children is a life insurance policy designed to provide coverage for a child from infancy through adulthood. These policies are typically a form of permanent life insurance, such as children’s whole life insurance policy, which provides coverage for the child’s entire life as long as the premium payments are made.

Here are some key features of child life insurance policies:

• Lifelong Coverage: Unlike term life insurance, which only provides coverage for a set period, a whole life insurance policy for a child offers lifelong coverage. This means the policy will remain in effect for the child’s entire life.
• Cash Value: A portion of the premiums paid goes into a savings component known as the cash value. Over time, the policy builds cash value that grows at a fixed rate, providing a potential source of funds for future needs, such as college savings or starting a business.
• Fixed Premiums: Policies for children generally come with low premiums that are fixed for the duration of the policy. This makes it affordable to lock in a lower rate while the child is still at a young age.

Benefits of Life Insurance for Children

Purchasing a life insurance policy for a child has several benefits that can provide both financial protection and peace of mind:

1. Guaranteed Future Insurability: One of the main advantages of buying life insurance for a child is that it guarantees future insurability. This means that the child will always have life insurance coverage, regardless of any future medical conditions or changes in health. This can be particularly valuable if the child develops a medical condition later in life that would make obtaining coverage more difficult or expensive.
2. Low Premiums: Since children are generally healthy, the cost of life insurance is lower when purchased at a young age. Low premiums can result in significant savings over the lifetime of the policy, especially compared to buying a policy later in life.
3. Cash Value Growth: Whole life insurance policies for children accumulate cash value over time, which can be accessed through loans or withdrawals. This cash value can serve as an emergency fund, a source for college savings, or even a down payment on a home.
4. Financial Security for Loved Ones: In the unfortunate event of a child’s death, the death benefit from the policy can help cover funeral expenses and other costs, providing some financial relief to the family during a difficult time.
5. Additional Coverage Options: Some life insurance companies offer riders or options to add more coverage as the child grows, without needing a medical exam. This flexibility can provide added protection over time.

Types of Life Insurance for Children

When shopping for child life insurance policies, there are a few different options to consider:

• Children’s Whole Life Insurance Policy: This is the most common type of life insurance for children. It provides permanent life insurance with a guaranteed death benefit and a cash value component that grows over time. Fixed premiums make it a stable, predictable option.
• Children’s Term Life Insurance: While not as common, some term policies can be purchased specifically for children. These provide coverage for a specific number of years and do not build cash value. However, they can be a lower-cost option for those seeking temporary coverage.
• Riders on a Parent’s or Grandparent’s Policy: Many parents or grandparents choose to add a child term rider to their own life insurance policy. This rider provides a small amount of coverage for the child and is typically the most affordable option, although it does not build cash value and usually expires when the child reaches adulthood.
• IUL for kids: Opening an IUL account is another great permanent life insurance option for children as the policy can provide death benefit protection as well as establish a foundation for growth, especially when you choose a max funded IUL.

Considerations When Buying Life Insurance for a Child

If you’re considering purchasing a life insurance policy for a child, here are some factors to keep in mind:

• Financial Goals: Think about what you hope to achieve with the policy. Are you looking to secure lifelong coverage for your child, build a savings component, or ensure future insurability?
• Cost of Life Insurance: Evaluate the cost of life insurance for children compared to other savings or investment options. While premiums are generally low, consider the overall cost and whether the benefits justify the expense.
• Choosing the Best Life Insurance Company: Look for a reputable life insurance company with strong financial strength. Companies like Mutual of Omaha or American Amicable have good reputations and offer various options for children’s life insurance.
• Policy Features: Understand the terms of the policy, including the coverage amount, cash value growth, and any limitations or exclusions. Also, consider whether additional riders, like a waiver of premium or guaranteed insurability, could benefit your child’s policy.

How to Buy Life Insurance for a Child

Applying for life insurance for a child is typically a straightforward process:

1. Get Insurance Quotes: Start by getting quotes from several life insurance companies. Compare the premiums, cash value growth, and potential death benefits.
2. Choose the Right Policy: Decide on the type of policy that best fits your goals and budget. Consider whether a whole life insurance policy or a term rider on your policy is more appropriate.
3. Complete the Application: The application process usually involves filling out a form with basic information about the child. In most cases, a medical exam is not required for children, making the process simpler.
4. Review the Policy: Once approved, carefully review the policy details, including the terms of coverage, the cash value accumulation, and any exclusions or limitations. Make sure you understand how to make premium payments and what happens if a payment is missed.

Conclusion: Is Life Insurance for Children Right for You?

Purchasing life insurance for children can be a thoughtful way to provide financial protection and ensure future insurability. It offers the peace of mind of knowing your child or grandchild will have lifelong coverage, regardless of future health or circumstances. However, it’s also essential to consider whether this investment aligns with your broader financial goals.

By understanding the insurance options and benefits of child life insurance policies, you can make an informed decision that helps protect and prepare for your child’s future. If you’re unsure about the best choice for your family, consider speaking with a financial advisor or insurance agent who can guide you through the process.