Should I Buy Life Insurance for My Children?

This is a question I hear all the time from readers who are parents – and it’s a question that comes up in our own household as well. Should our children have life insurance policies?

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I’ve done a lot of research and soul-searching on this topic. What follows are the conclusions I’ve come to on the issue. I hope these thoughts will help other parents make up their own minds on this difficult issue. I’m writing the things below with great care, because such concerns can be very, very emotional for parents (myself included).

The obvious and easy answer to the child life insurance question is no. Life insurance is usually purchased as either a salary replacement (so that a spouse or children aren’t left with an inability to maintain their standard of living) and/or a tool to pay for funeral expenses. In the case of a child, there is no salary to replace – and with the absence of a child, living expenses for the family actually drop, meaning it is possible for a family to cover funeral expenses.

Thus, from a straightforward analysis like this, life insurance for a child isn’t a strong financial choice.

But that’s not all there is to it.

The biggest issue is the possibility of illnesses developing late in childhood or in adulthood could prevent your child from being eligible for life insurance. I look at myself as an example of this. I was born with a highly underactive thyroid. My parents were able to get me a small life insurance policy as a child because they were very concerned with other illnesses springing up – and that policy still exists today.

There is also the smaller concern of the ability to pay for a child’s funeral and end-of-life expenses if that happens. For some families (ours included), there is adequate money in the emergency fund to pay such costs. For other familes, however, such funds aren’t easily available, for various reasons. That usually means debt.

There’s also the very small benefit that some policies function in a way that helps pay for college, but these are usually sub-par compared to a strong 529 college savings account. This is more of an “icing on the cake” type of thing rather than a primary feature.

What’s my conclusion? In the end, it comes down to your family’s financial state. If you’re in a good situation with a strong income, life insurance for your child can be a solid choice. However, it’s more important that your child receive other things first, such as steady nutrition, good health care, shelter, clean clothing, and perhaps other savings options for their future (like a well-funded 529).

In our case, we have small policies for each of our children, mostly for the “potential future illness” concerns stated above. My own concern about this may be somewhat inflated because of my own history, but it’s something Sarah and I both take seriously. It’s something we can easily afford and it’s something we know will have value for them no matter what happens in life. The insurance is not a strong bargain, but the monthly cost is very low.

If we were put into a choice between the insurance policy and other essential tools for caring for our children, the other areas would come first.

If you do decide to go the child insurance route, I strongly encourage you to shop around and take your time with the decision. Not all insurance houses are the same – there are big differences in price and coverage out there. I wouldn’t get a large policy, either – one that covers funeral expenses should be an adequate one. If you’re thinking about college, I’d suggest putting the rest of the money you might have spent on a policy into a 529 college savings account like the one we use at College Savings Iowa. That’s exactly what we’re doing.

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  1. Brian says:

    I have had an underactive thyroid my entire life, but was only diagnosed 6 years ago (age 20) and put on good medication (natural desicated thyroid) last summer.

    I hope you have had your children tested. It is hereditary and always passed down to children if it is caused by thyroid antibodies. Life would have been quite a bit different for me if I’d been tested earlier.

    Be sure to follow Mary Shomon’s website, I think it is the best site for thyroid information on the internet.

  2. Melissa says:

    Could you please clarify – do you have term policies or whole life for the kids? Or is there some other option available for children? Thanks!

  3. SAFTM says:

    I agree that it’s a difficult decision that starts with “no” and requires a strong reason to get to “yes.” I take it your parents bought a whole life policy for you, which would be the only one that would make sense for the inability-to-insure-later point of view. That’s a very expensive product.

    And if you really have enough money to throw some extra at a whole life (or other permanent policy) on your child, it’s possible that you have enough money to assist if your child becomes uninsurable and passes away. But not necessarily because a lot can happen between now and (if and) when the child becomes uninsurable.

    I still think the answer ends up at “no” except for the rare case. Perhaps (a) if illness runs in your family (b) it’s very likely that child will suffer (c) all other financial planning is done (including savings) and (d) some money is still available that you don’t plan on needing, the decision might get to “yes.”

    If the policy is only for funeral expenses it might be cheaper in the long run just to save up for it in a separate “life emergency” account instead of paying for the insurance.

  4. Nansuelee says:

    We have $10,000 universal life policies for both of our children and I would not be without it. It is peace of mind for us should the unthinkable happen and when they are older they will be able to increase the value to fit their needs.

  5. SAFTM says:

    To clarify, I should have said “permanent” not “whole” because there are different types of permanent policies. I don’t think it would make sense generally to have “term” unless the policy is to cover the child if she gets sick and passes as a child. But I just don’t see it as being a choice my family would make. But it is “personal” finance after all.

  6. Kat says:

    *I work for Gerber Life, but in no way do I speak for the company… these are my personal comments*

    While I agree with most of your article, I’ll disagree that a decrease in living expenses is enough to cover funeral costs. I speak to people who have to borrow money to bury their loved ones (children or adults), and sometimes even then can’t come up with the funds. It’s terrible. My recommendation is to purchase enough insurance to cover funeral expenses. Children’s policies don’t need to be covering much more than that. It’s only as an adult that you start thinking about other debts and obligations you leave behind.

    Life insurance (for adults or children) shouldn’t ever be used as a college plan/savings account. That’s simply not what they’re designed for.

    @Melissa – The place I work only offers whole life insurance for children. Not only does it speak to future insurability as Trent mentioned, but the rates are so low for children that it makes more sense to lock in the rate for the rest of their life, rather than a term that will increase when they become an adult.

    Bottom line, there’s no right or wrong answer for children’s insurance. It’s going to be different for each family.

  7. Matt says:

    I have I think a $10k policy for my daughter – I get it as an add-on to my through-work life insurance for somewhere around $2-3 a month. Given the low expense, it seemed prudent.

  8. Jaelyn says:

    We have $25000 each for our two children. It costs us $1.28 per month to cover them both. That to me is worth it. Our reason for purchasing it was this…children rarely die “peacefully” and therefore you are not only paying for a funeral, but are most-likely also paying for hospital, ambulance, and doctor bills. Having to pay for that out of pocket for years is just a painful reminder that your child is gone. It would reopen the wounds and healing would become that much harder.

  9. Marie says:

    Through my spouse’s work it costs us $10 a year to have a term $10,000 policy on our three kids. Average burial expenses are 13k now and so it makes sense to me if we got in a car accident that would take out all our kids for $10 a year we have $30k of it covered. We’d only have to pony up 9k from our e-fund. We’ve been debating paying $15 a year for 20k coverage per kid.

  10. Cheryl says:

    My friend has life insurance on her three kids equal to the amount of money they have cosigned for on loans.

  11. Angie says:

    The policies would be permanent (not term). I can think of no company that allows term on individuals under 18. Life insurance is peace of mind, not necessarily salary replacement. Even with this argument, you may be replacing salary if your child passed away. Think about it – would be able to go back to work after a couple days of losing your child? It’s devastating. I know personally, my sister died at a very young age. My mother was so distraught she couldn’t work for almost a year. That’s a lot of money she did not earn. Also, protecting a child in the event of an illness/disease has nothing to do with salary. Even adults do that – buy insurance when young and healthy in case something comes up in your medical history. I’d recommend purchasing a policy that will grow or at least provide some relief later in life (for instance, 10k was plenty in the 1980s, wouldn’t cover funerals today) and the minimum I’d get would be more than enough to cover the cost of a funeral and perhaps extra in case you’re as distraught as my mother.
    Or-it is possible to have a rider on your own life policy (term or perm) that covered your children. In this case, the policy can convert when the child turns a certain age (depending on rider/ins company policy). In this case they still have the option if some type of uninsurable issue pops up.

  12. Kathryn says:

    I understand Trent’s concerns re: insurance. Medical insurance falls into this as well. I had a difficult childhood & based on the things doctors wrote in my chart (mostly regarding depression) at age 19 i was unable to obtain medical insurance. It is hard to know what a doctor will put into a chart that will have a major effect on you at a later date.

  13. MARISSA says:

    When my brother and I turned 18, our parents got us each life insurance, 500k. w

  14. MARISSA says:

    When my brother and I turned 18, our parents got us each life insurance, 500k. We also started driving around this time so my parents did this for 2 reasons. In case we get into a car accident and die and the other party sues my parents who currently get the $ if i die. The second reason is one of those what are they called….you know when you bring your umbrella it wont rain but if you forget it, it will rain. I think it’s nice to have once you start driving, but not on a, say, 5 year old!

  15. cp says:

    Cheryl,

    That is very smart! I would never co-sign a loan I could not afford to pay back without pain.

    Is there such a thing as debt insurance, much like cc payment insurance?

  16. Russell says:

    one area you did not cover is what happens after a child dies. Do you want to have to go to work the next week? I am in the industry and have seen people go thru that terrible loss. It took one lady more than a year to shake the depression. Another family took the brother of a child that died out of school for the rest of the school year. The loss is tremendous and not easily overcome.

    Life policies on kids are cheap, get more than what is needed to cover the cost of the funeral. There is no need to go over board, but get enough to allow you and your family time to grieve and heal.

  17. Mennie says:

    Cheryl’s point is a good one – i.e. life insurance on the amount parents have cosigned in loans. I just read an article today in the WSJ about a family that lost their 22 year old son in a tragic accident a few years ago, yet must continue paying his private college loans because the parents were co-signers.

  18. Nate Poodel says:

    While I can see Trent’s point, I think getting some sort of policy isn’t a bad idea. Should the unthinkable happen with a long term illness most parents will continue treatment until end. However, an adult with his/her own informed decision may choose to stop treatments instead of eating up the health and life insurance payouts. In the end parents could use the money from a life insurance policy.

  19. Mule Skinner says:

    @Cheryl: I know of a situation in which an old lady cosigned a business loan for her son, but did not get the life insurance. He subsequently died in an automobile accident. She was unable to support the loan and lost her house. At age 80 she is now poor.

  20. Mule Skinner says:

    Long ago, back during the era of the First Wife, a life insurance agent tried to sell me policies on the kids and also on the wife. I pointed out that the kids weren’t bringing in any income and that I thought I could handle whatever the final expenses might be. (Those guys are now 45 and 46.) For the wife he made a case that I would have to hire babysitters and a cook and a maid, and so on. I said that a new marriage license would only cost $10.

  21. valleycat1 says:

    I can see some validity in the arguments on both sides of this issue, so my opinion is that if you can afford it & it gives you peace of mind, then do so. If you don’t answer yes to both, skip it.

    However, I would advise against buying whole life on children if your rationale is based on the concept of setting up a savings account (i.e., the projected cash value once they come of age & don’t want to continue the payments) – the return is awful compared to other options for saving toward the future.

  22. DestinDreams says:

    Speaking from personal experience, you should have a basic term policy on each of your children. I have one child that is now uninsurable because of epilepsy (at age 6), and I have one child that died in an accident. His “basic” funeral and burial (nice, but frugal) cost $15K and this was just over 1 year ago. You have to come up with this money within a short period of time. On the heels of this, my husband died 2 weeks later, and his funeral also cost $15K. He was also uninsurable and I lost his income with 2 other children to still support. Life Insurance could have helped ease the burden during a very difficult time, and also left my small emergency fund intact for the rough road ahead. Term life insurance for a child is extremely inexpensive, and should be a priority for every parent. Unless your child has a terminal illness, no parent EVER imagines that their child will actually die. I unfortunately, live this reality.

  23. Mar says:

    I have $15K of insurance for my daughter through work and it costs about 58cents every bi-weekly paycheck. As Marie noted, for that amount, I’m willing to pay it to cover the burial expenses with anything left over going to pay the co-pays on the many psychiatric visits I will need if anything ever happens to her.

  24. I really think that it is important for kids to have their own life insurance plans. It is better to start it young, just like how you tell them how important saving their own money is.

  25. Systemizer says:

    “I wouldn’t get a large policy, either – one that covers funeral expenses should be an adequate one.”

    Clearly you would foresee no impact to your earnings or to the stability of your household.

    If I were in your situation I’d watch movies like “The Door in the Floor”, “The Son’s Room,” and “I’m Fine, Don’t Worry,” and then consider insuring each child for $500,000.

  26. I’d stick with the easy answer–that being no.

    To me, the purpose of insurance is to provide for your loved ones in the event of your death. So, you would have to be a breadwinner of some sort.

    Children would not fall into this category.

    My parents had life insurance on their four children.

    M ymother cashed in these policies, invested the money, and they are now living off of the profits.

  27. Kate says:

    Good idea for the insurance to cover the co-signing of a loan. I think it is probably a better idea not to co-sign a loan, though.

  28. beth says:

    definitely agree that college savings is best separate from life insurance. another benefit for term is that once the child is an adult he/she can get up to 5xs the coverage without needing to qualify (for my company)

  29. beth says:

    in addition, my company, primerica, writes one policy for the fam so only one fee. the child/children is the same 1 price for one or more no matter how many kids. very fam friendly

  30. brad says:

    my company provides $25,000 spouse/domestic partner life ins and $10,000 per kid for $130.26 a year. if i were married or a parent i would def think about it, and would probably sign up for both.

  31. Pat says:

    We purchased small policies for both our kids when they were very little. When our oldest went off to college I also purchased an additional policy which would payoff her college loans if she passed away. Once she completes college we can sign that policy over to her, which we plan to do, and she can increase the amount of coverage at her own discretion.

  32. Kevin says:

    @beth:

    Wow! This “Primerica” sounds like a great company! How can I learn more about obtaining such awesome coverage for my own family, at competitive market prices?

    Is there any chance Primerica can offer me an innovative, overpriced mortgage product, too?

    And finally (and I’m almost afraid to get my hopes up), is there any way I could pay money to join Primerica and work for them? I’m not greedy though – I’m willing to put in hundreds of hours of work for almost no money, and in fact I’d like to actually LOSE money after expenses like gas and training are factored in.

    I’d also like to alienate all my friends and family by nagging them to switch their insurance to crappier products that will cost them more. And I’d like them to get annoyed at me for constantly harassing them to join Primerica beneath me, so I can make money off their work.

    Ideally, I’d like to be part of some sort of pyramid-shaped money-making scheme.

    Can Primerica help me with all of that?

    It can?! That’s wonderful!

  33. Kevin says:

    @Brad:

    $10/month for $35,000 coverage? That’s actually a terrible deal. If you’re young and healthy, $30/month can get you a million dollar policy. What makes it even worse is that your employer is offering that – which means it’s subsidized by your employer! That’s not even the entire cost you’re seeing!

    Buying extra insurance through your employer is a bad idea, because when (not if) you leave the company for whatever reason, you lose the policy too, and you have to go get your own coverage. By then, you may have developed a “pre-existing condition,” and be uninsurable.

    If you have dependents, then get your own term policy, NOW, outside of work. And don’t pay $10/month for a measly $25,000 coverage. That’s pretty weak.

    If you DON’T have any dependents, don’t buy any life insurance at all.

  34. Nick says:

    PAT
    It makes no sense to get life insurance to pay for student loans. If she were to die then the loans would be against the estate. if there was nothing in the estate then they would default. However if you bought the insurance on your daughter and are the benificiary then if she died it would be like you are giving your money to her loan providers? Not smart in my opinion.

  35. Katie says:

    It makes no sense to get life insurance to pay for student loans. If she were to die then the loans would be against the estate. if there was nothing in the estate then they would default. However if you bought the insurance on your daughter and are the benificiary then if she died it would be like you are giving your money to her loan providers? Not smart in my opinion.

    Not if her parents co-signed the loan.

  36. Andy says:

    Treat it like any financial decision. If your children can justify it’s value then help them. Also you should have right to the policy funds.

  37. Susan says:

    We got a small whole life policy for our son when he was about 4. We also bought this based on the “what if” of possible illness down the road. That worked out well for me – my parents had bought a policy for me when I was 13. Years later I was diagnosed with a chronic illness that makes me uninsurable for a new policy, but because I have an existing policy, at certain milestone years I’m able to add to the coverage with no medical qualifications. So I was able to increase the policy a bit (our term policies are our “real” policies – this is pretty much just funeral money if needed).

    Great advice about getting life insurance when you co-sign a loan. I never would’ve thought of that.

  38. annie says:

    We have a small policy on our son through my employer. It is not so much for funeral expenses, but I imagine that if we were to loose a child we may not feel like working for a few weeks, so we could afford to take the extra time off with out worry.

  39. Ali says:

    Check with your insurance agent, because many adult term life insurance policies offer riders for minor children. My 20-term life insurance policy has a $10k rider for each of my three children. I pay about $200 a year total for all 4 of us. Ask your insurance agent (or ask several!). With this you would not need additional coverage.

  40. Becky says:

    Another possible reason to get life insurance on your children would be the effect it would have on you if you lost a child. I can imagine that it would be difficult to return to work immediately after the emotional wrecking ball that would result from losing a child. There could also be extra expenses such as therapy for yourself or your surviving children, marriage counseling, possibly remaining health care bills, etc.

    It sounds kind of harsh, but not needing to make decision on how to deal with the loss based on finances might make it easier for the parents and siblings to salvage somewhat of a healthy life moving forward.

    (To be clear I’m not advocating a million $ policy to get rich off of a tragedy. Simply enough to cover therapy/time off to deal with the loss)

  41. ruth says:

    @ Becky,

    you are so right. I look at all of the above posts and I realize that noone takes into account the pain and suffering that losing a child causes. I was 12 when my baby sister was born and I was 23 when she passed away (the week before Christmas in 2007). When it came to the funeral my parents were looking at costs at all… it was about what would make my mom the most comfortable (my dad was more worried about my mom than anything else) the funeral should have cost about 16000, but God Bless the person that anonomsyly donated the casket. so instead it only cost 13000. Because my sister had a “pre-existing condition” (she was born with birth defect in her brain that caused seziures) she was turned down for any and all life insurance policies, although thank GOD my father had really good health insurance through his work. In the end my parents wound up taking out a home equity loan to pay her funeral expenses.

    But since then the emotional damage has taken its toll in a big way. After my sister passed my dad decided that he couldn’t deal anymore with the “politics” of his job and retired about 8 months after her passing. It has made him much happier but it’s now put a money strain in their relationship because now my mom had to go back to work again. (she has since been on medical leave for most of this year for health reasons, mostly related to stress)… had they had decent life insurance policy for my sister than they would have maybe been able to take the time to decide what the best thing for them would have been… maybe they would have not had to take out a loan on the house, and could have downsized to something else…

    there are so many different what-ifs…. none of which my parents were prepared for… and it’s not just financially.

  42. John S says:

    I’ll speak up in favor of buying whole-life insurance for your kids. Here is my experience:

    My parents bought whole-life insurance for me when I was an infant – not a real lot; just $15,000 face value (this was back in the 70s). Whole life insurance is NEVER going to be cheaper than when you’re less than a year old. My dad has borrowed against the cash value throughout my childhood whenever he needed a credit-free loan.

    When I got my first job out of college at age 21, my dad paid off his loan on my policy, and turned the policy over to me, and I began paying the premiums. By then it had accumulated a nice little cash value component, which I borrowed against to help make the down payment on my first home at age 23. I paid the policy back within a year. I then used it again to buy my current house last year.

    In general, it’s been great to have a low-interest line of credit to tap into, without involving credit bureaus and without obligation to pay back on a specific schedule (or at all, really).

    I know that traditionally, whole-life insurance projects more weakly than buying term and investing the difference. But those projections are usually based on 8% returns, whereas whole life insurance pays a much lower return, (usually based on T-Bills with a minimum floor that you’re guaranteed.)

    However, over the past decade, my whole life policy has proven to be one of my most reliable and best performing investment vehicles (sadly.) I mean, hey, I really hope that won’t continue to be true going forward. But, you never know. Earning 4% looks pretty darn good right about now in this economy.

    I just had a baby and I plan to buy him a small whole life policy before the year is out. It makes a great “first job” gift, and protects my wife and me, in the meantime.

  43. Mary says:

    I lost a child, 25 years ago, and wished I’d had the insurance…It would have helped immensely with the expenses. You never think it will happen to you, but it can. It only takes a moment.

  44. Angie says:

    Ruth and Becky hit the nail on the spot. My sister passed away at age 20 and it had a similar impact on my parents. She’s been gone almost 11 years and it still impacts them today. I do not wish that kind of stress/pain on anyone.

    John S.’s story is a great example of how whole life policies can help you out. Too many people are on the ‘term is all you need’ hype and think they should cancel every whole life policy they have. It can be a good way to tap cash (tax free, in some cases).

    Please don’t consider Primerica for insurance needs. Kevin’s synopsis is correct.

  45. Jessica says:

    I think having a life insurance policy on your children is very important. Ofcourse, we do not want to think that something such as death could happen. My mother refuses to believe that I could die before her. I know she knows better, but, just like all of us we can’t stand the thought of our children leaving this earth before us. I think just about everyone who have commented have valid points, some I didn’t even think about.

  46. almost there says:

    I agree on universal life insurance. Many uses and interest greater than market. Six years ago purchased policy on child thinking there were long term medical issues. It is paid up and worth more that I purchased it for (cash value). Over 7% return on interest per year. He can borrow on it, use it for long term care and have a tidy nest egg in his old age. Win-win situation for him as it didn’t cost him anything. His Roth IRA that we invested in for him isn’t doing that well.

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