There are valid reasons why a parent, grandparent, or legal guardian may want to buy life insurance for a child – to build a nest egg, to ensure coverage as an adult, or to provide for end-of-life expenses should the child die unexpectedly. But children’s life insurance is not for everyone, and you should speak with a qualified life insurance agent or company representative before buying a policy.
Whether you’re a parent, grandparent, or legal guardian, you want the best for your child. For some people, that means buying children’s life insurance to provide financial protection should the unthinkable happen to a child or grandchild. Depending on personal circumstances and needs, other reasons to consider buying a child life policy may include:
- Your child’s future insurability is important to you. Most children’s policies are a form of whole life insurance, which provides coverage for a lifetime so long as premiums are paid regularly. Once your child reaches a certain age, they may be able to buy additional coverage, regardless of their current health or occupation.
- You want to lock in lower premiums. Generally speaking, the younger the insured person is, the cheaper their premiums will be. Insurance companies lock in these low rates for policyholders at the time of coverage and will not increase them over time.
- You’re saving for the future. Whole life insurance policies contain a savings component, which is called the cash value. This cash value grows over time, usually at a fixed rate, and can be borrowed against or paid out if the policy is surrendered. Some insurance companies tout these policies as a means of saving for a child’s college education, while others caution against doing so. Talk to a licensed financial planner about how to save for your child’s future.
Who Shouldn’t Consider Buying Children’s Life Insurance?
Not everyone wants or needs life insurance, and some parents, grandparents, or guardians may opt against buying coverage for their child. Reasons not to buy children’s life insurance can include:
- Alternative ways to save for your child’s future are available. Depending on your tolerance for risk and desire for returns, investment options can range from bank savings accounts to mutual funds, as well as 529 college savings plans. Some kinds of life insurance policies for adults, such as variable life insurance, also have investment components.
- Death benefits are fairly low. Unlike an adult life insurance policy, which may have a death benefit of as much as $500,000 or more, child policies typically pay $50,000 or less.
- You can’t afford the premium. In general, premiums for children’s life insurance policies are lower than what an adult can expect to pay for a policy of their own. However, you may have financial priorities or obligations that make it difficult to cover a child’s life insurance premium.
Children’s life insurance is a permanent life insurance policy that provides a fixed death benefit to the beneficiary in the event that the insured child dies while covered. It can also be used as a long-term savings mechanism, as these policies typically include a cash value and grow over time.
Children’s life insurance can be purchased one of two ways: as a standalone whole life policy written for the child or as an add-on (called a rider) to a parent’s or guardian’s term or permanent life insurance policy.
Children’s life insurance coverage lasts until at least age 18 and may continue until age 25, depending on the carrier and type of policy you have. Death benefits are fairly low, $50,000 or less in most cases. Policies may contain what’s known as a guaranteed insurability rider, which allows additional coverage to be purchased once your child reaches a certain age or passes a specific life milestone, such as getting married.
Most insurers will transfer ownership of a whole life policy automatically from a parent, grandparent, or guardian, to the insured child once they turn 18 or 21. Some may allow you to transfer ownership at the time of your choosing. In either case, premiums must continue to be paid on time in order to guarantee coverage continues.
With a child life rider or add-on to a qualified adult policy, ownership is usually transferred later, at age 23 or 25, depending on the insurer. If the child wants to continue coverage, they’ll need to convert the original rider policy into a new whole life insurance policy.
Children typically become eligible for coverage at 14 or 15 days old. Once that threshold is met, you can buy a policy for your child or grandchild at any time until they reach their teens. The cutoff age varies from insurer to insurer. For example, age 14 is the ceiling for the Gerber Life Insurance Grow-Up Plan, while Mutual of Omaha makes age 17 the limit for buying a children’s whole life policy. If you’re adding a child life rider to your own policy, that age threshold may be extended until age 25, depending on the company.
Parents, grandparents, and legal guardians can buy life insurance for their children by contacting insurers directly, either online or by phone, or through a licensed agent. Employers that provide group life insurance to their workers as a benefit sometimes also offer optional supplemental life insurance, including policy riders to cover spouses or children. Not all insurance companies offer child life insurance policies and riders, however. If you’re interested in purchasing coverage, check with your insurer or agent.
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