Should You Buy Life Insurance for Children?

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While the benefits of life insurance for parents are clear, the pros and cons of taking out life insurance for kids are a different matter. Whether you should buy life insurance for your children depends on many factors.

Read on to learn more about the kinds of insurance and whether an insurance policy for your children is the right move.

Life Insurance for Children vs. Adults

Life insurance is usually purchased as either a salary replacement (so that a spouse or children aren’t left unable 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. With the absence of a child, living expenses for the family actually drop, meaning it is possible for a family to cover funeral expenses through savings or loan payments without cutting significantly into household expenses.

If you are working paycheck to paycheck, life insurance for children is typically low cost and may be a consideration. It is important to consider the cost of an accident and the associated medical bills that you may have to pay out of pocket for your child. If you don’t have a medical insurance plan that will cover the bulk of an emergency issue, then life insurance can offer a bit of relief from the expense.

There is also a smaller concern of the ability to pay for a child’s funeral and end-of-life expenses if the worst were to happen. For some families, there is adequate money in the emergency fund to pay such costs. For other families, however, such funds aren’t easily available for various reasons. That usually means debt. If you are not good at saving money, this can be a relatively inexpensive way to have the money you need if it came down to it.

Life Insurance Approval for Children

The biggest issue is the possibility of illnesses developing late in childhood or in adulthood that could prevent your child from being eligible for life insurance. This is the reason most parents and grandparents consider buying insurance for children.

While there are some insurance policies that will offer a small sum, up to $10,000 or so, and don’t ask questions, larger dollar value plans may require a medical examination. If you have a child with a congenital condition or a life-threatening illness that is diagnosed before you get insurance, it may be very difficult or expensive to obtain.

The question to ask yourself if you have a child with an illness or chronic condition is whether the price of monthly premium payments on this insurance is more or less than the sum you will receive if you lose your child. Insurance agencies tend to calculate this to work in their favor. The sooner you lose a loved one, the more the cost becomes a windfall compared to money spent. Of course, since losing a child is a worst-case scenario, this never feels like a winning proposition.

Whole vs. Term Life Insurance

Life insurance comes in two categories: whole and term. The difference is similar to choosing between renting an apartment and buying a home or condo. Term life insurance is less expensive than whole life insurance, but it is like renting a home. Once the payments stop, you have nothing to claim. Whole life insurance is significantly more expensive, but it also works more like an investment account. Many will purchase the policy with a large lump sum and will use the insurance company to hold on to the investment for them. If a large down payment is made, you may not even need to make monthly payments. Like term life insurance, the money that is claimed if something happens to your child is significantly greater than the money invested.

The money from a whole life insurance plan can be cashed out with gained interest at any time. If you have a sum of money at the time of the birth of a child, it may be a smart investment to place this money in the care of an insurance company. This works similarly to a 529 plan. If something happens to your child, it can become a life insurance payout. If your child grows happily into adulthood, it can blossom into a healthy college fund.

Cost by Age

As an adult, the cost of insurance will increase based on the age range you fall into. This is because there is a greater likelihood of passing away during each decade of your life. Children remain in a low-risk bracket for death. Because of this, most insurance companies have the same price for child life insurance regardless of what age they are— from birth to 18— which is a benefit to purchasing life insurance for children.

How does life insurance for a kid work?

Purchasing life insurance for a child generally means you’re purchasing a whole life policy that you can transfer to them once they reach adulthood. Because it’s a whole life policy, this means it comes with a savings account that grows over time as you pay the premiums.

To buy your child a policy, you don’t have to purchase one through a specialized company. You can do so with just about any major life insurance company.

Another option is to simply add your child to your existing term life insurance policy through an endorsement. He or she will be removed once they reach 18, but this option comes with many of the same benefits that come with a separate policy. Another perk is that going this route adds only a few dollars to your monthly premium.

Is life insurance for a child worth it?

In some cases it is, indeed, worth it, but most often it’s not. Questions you should ask yourself include:

  • Is there a strong possibility your child may pass away before he or she reaches adulthood?
  • Are you concerned about his or her future financial stability?
  • Because of family history, do you think your child may develop a lifelong disease?
  • Have you researched additional investment opportunities to protect you and your child?
  • Does your life insurance offer an endorsement to add your child?

For most people, buying a separate policy for their child does not make as much financial sense as investing their money elsewhere. Generally the most important thing is to make sure your child is a beneficiary for your life insurance and not the other way around.

Why would one get life insurance for a child?

There are a few scenarios where you would want to consider purchasing life insurance for children:

  1. Future qualifying: If you’re worried about your child developing a medical condition later on in life, and are therefore concerned about their ability to qualify for life insurance when they are older, then doing so when they’re young is a good idea. For example, perhaps numerous people in your family have a congenital condition that appears in their late teens. It hasn’t shown up yet in your child, but you know there is a possibility that it might in the near future.
  2. Affordability: If you’re concerned that your child won’t be able to afford life insurance when they’re older, purchasing it when they’re younger guarantees a lower rate when they’re an adult (provided the policy has been kept active).
  3. Future Financial Protection: Most child life insurance policies are whole life policies, which means it comes with a savings account. This means setting them up early not only protects them with low life insurance premiums, but it also has the added caveat of a savings account that grows with every payment, which they can access whenever needed.

Pros and Cons

Pros Cons
Savings account: With a whole life policy, the savings will grow over the years as your child matures There are numerous fees when withdrawing ‘your’ money from a whole life savings account, and there are numerous better ways to invest your money, such as a 529 if you’re concerned about college tuition
Funeral expenses: Pays for a potential funeral should your child pass away The odds of your child dying are most likely low
Locks in qualification: Should your child develop any medical conditions, he or she will not have trouble qualifying for insurance This is a lot of money to spend for a ‘possibility.’ Plus most people buy life insurance in their 20s and 30s and have no trouble doing so (often without even needing to perform a medical exam)

Life insurance for children simplified

  • The importance of buying life insurance for children varies from family to family
  • Unless your family has a history of congenital conditions, it’s usually unnecessary
  • There are often better ways to invest your money for your child’s future needs
  • Instead of a separate policy, consider purchasing a rider for your existing policy
  • Make sure your child is listed as a beneficiary for your life insurance

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Lauren Ward
Lauren Ward
Contributing Writer

Lauren Ward is a personal finance writer living in Virginia’s Blue Ridge Mountains with her husband and three children. In her spare time she enjoys board games and gardening.