Buying life insurance for a child may seem counterintuitive given that children do not have an income that needs to be compensated – a major reason adult life must be insured.
While life insurance for children may not be an essential purchase, it does have some advantages. First, buying an insurance policy when the child is young can protect him from high premiums and ensure the possibility of insurance in the future.
Second, the costs related to your child’s death can be covered by the policy for your child. And third, because the child policy must be permanent, it will build monetary value from which the child can derive as an adult.
For all its advantages, there is an important caveat to buying life insurance for your child: You should carry at least the same amount of life insurance — and sometimes more.
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What is life insurance for children?
In most respects, life insurance for children is very similar to life insurance for adults: premiums are paid monthly or annually and the policy pays death benefits in the event of death.
There are a few key differences from child insurance policies, though:
- A parent, grandparent, or legal guardian owns the policy.
- You can usually buy a life insurance policy for your children when they are 14 days old and they are 14 years old.
- Some companies are putting in place new policies for children up to 24 years old.
- Applications do not require a medical examination and only require a health questionnaire.
- The only policies available for children are permanent policies, most commonly whole life insurance.
- Permanent life insurance provides coverage for the entire life of the policyholder, usually at a fixed rate, as long as the premiums are paid continuously.
- You can also get life insurance for a child under a fixed-term policy only by adding coverage to life insurance as an optional passenger.
- The passenger will cover minor children up to a certain age, often with the option to convert coverage to a permanent insurance policy at an additional cost.
Why buy life insurance for children?
It’s sad to plan for the probability of a child dying, and the odds of a child dying are statistically low. However, their life guarantee can provide peace of mind about having to struggle with the financial fallout from their death.
Insuring your children at a young age can ensure that they are covered against events that may complicate obtaining a policy later — such as developing a serious medical condition or pursuing a high-risk occupation or hobby, such as skydiving.
And if you want to increase the death benefit on your child policy, many insurance companies offer passenger insurance that allows you to purchase additional coverage without the need for a medical exam.
Full life insurance for children
If you are considering life insurance as an investment in your child’s future, a stand-alone life insurance policy can offer many advantages.
The monetary value saving component of an entire life policy, for example, can help your kids pay for college and other expenses as they grow. Parents may enjoy the flexibility of this money, for example, in keeping the money in a 529 plan, which can only be used for educational expenses.
Cash value, the investment component of permanent life insurance, has more time to grow with a policy bought for the child. If necessary, you can borrow against the value or use it to help pay the policy premiums.
The monetary value of the policy may not be the main reason for buying life insurance, but it is an excellent plus.
Child life insurance rider
A full children’s life insurance policy can help pay for the funeral, but there may be a better option if these expenses are the primary motivation for purchasing life insurance for the children.
Adding a rider to a life insurance policy that covers funeral costs can be less expensive than getting a life insurance policy for your child—partly because permanent insurance usually costs much more than term coverage for the same amount of benefit.
Regardless of whether you choose an additional job or a separate policy, plan to pay life insurance payouts to cover not only funeral expenses but also potential financial setbacks that can accompany your child’s grief. These costs can include having to take extended leave from work without pay and paying for grief counseling.
How to buy the best life insurance for kids
You may ask yourself, “What is the right age to purchase life insurance for my children?”
Well, since the prices go up as the baby gets older, you won’t get a lower price than when you insure your babies as newborns.
Since the rates are so inexpensive, you can even choose to pay all insurance premiums on the policy within ten to twenty years – before the child reaches adulthood.
1. Consider your life insurance needs
Purchasing a life insurance policy for your child requires that you have one of your own of equal or greater value to the child.
Requirements vary by company, but usually a parent needs at least twice the amount of coverage on a child. It doesn’t matter if parental coverage is fixed-term or permanent.
Example: If you want a $50,000 insurance policy for your child, you will need to be insured for at least $100,000.
If you’re looking for coverage, consider Money’s top picks for the best life insurance companies.
2. Take care of other priorities
Before you decide to insure your children, be sure to take care of other important priorities such as saving for retirement and paying off high-interest debt.
Evaluate your family budget, evaluate your investments and evaluate your life insurance needs. It is recommended that you consult a certified financial planner to understand whether life insurance for your children fits with your overall financial picture.
3. Consider other options
You may also realize that life insurance for children is not appropriate for your family. There are other ways to give them back what you’ve been spending in premiums, such as giving them a cash gift of certain ages or getting separate savings to help them pay for college.
How much is life insurance for children?
It is more expensive to purchase a life insurance policy than adding a child life rider to your life insurance policy, according to Quotacy, a life insurance brokerage. The difference is because full lifetime coverage is for the life of your children and carries a cash value component, which an insurance policy rider does not.
Premiums on whole life policies depend on the age and gender of the child.
Example: The average monthly premium on a $50,000 insurance policy — a fairly high death benefit for a child — for a 5-year-old can be $26.96, according to Quotacy.
As mentioned above, the younger your children are when you purchase the policy, the more affordable it will be, and the more time the cash value should grow.
Life insurance companies typically limit the amount of coverage that parents or legal guardians can purchase for their children. Coverage amounts can start as low as $10,000 and go up to $100,000. This range is less than the death benefit of $1 million or more, you can choose an adult policy.
Why the gap? This is due to the child’s lack of significant income, at least in most cases. Since children do not bring any income to the family, insurance companies determine the scope of benefits based on other financial burdens for your child who passes unexpectedly, such as paying funeral costs and covering temporary loss of income.
Summary of Money Guide for Children’s Life Insurance
- If you are wondering why you should buy life insurance for your children, consider these three things about buying life insurance for children: it can be an investment, it can be relatively affordable and you can save more if you add children to your policy.
- Child life insurance is designed to cover the costs involved in losing a minor, including final expenses and other costs that can arise from grief.
- Loved ones can also purchase a permanent life insurance policy as an investment for the child’s future. When a child gets older, they may use the monetary value of the policy to pay for their education or buy a home.
- Purchasing life insurance coverage for your child at a young age can insure a lower rate and provide him some protection if he later develops health issues that prevent him from obtaining an insurance policy on his own.
- The younger the child when purchasing a life insurance plan, the lower the cost.
- Life insurance (the only type available for children) is more expensive than insuring your child by adding a child rider to your life insurance policy. However, the premiums are guaranteed to remain the same for the life of the policy.
- Monthly premiums on a $25,000 insurance policy for a one-year-old child can start at $15.