Life insurance for children: A guide for new parents

Key takeaways

For families, life insurance is often a financial safety guard put in place in case a parent dies, but what about policies for children? If you’re considering buying life insurance for a child, it’s important to understand the pros and cons and alternatives before you purchase a policy.

Do children need life insurance?

You generally don’t need to buy life insurance for children since they aren’t responsible for a family’s financial stability. But life insurance for a child might make sense under certain circumstances.

“While the primary purpose of life insurance is to protect against financial loss, some families use permanent life insurance for children as a long-term planning tool,” said Mark Wise, wealth-management adviser, Northwestern Mutual in Indianapolis. “It can help secure guaranteed insurability early in life and may build cash value over time. For families thinking generationally, it can also be one piece of a broader financial plan designed to support the child well into adulthood.”

When does children’s life insurance make sense?

Cases when parents might want to buy life insurance for children include guaranteeing insurability, locking in lower rates for the child or building cash value with tax advantages.

Guarantees insurability

Buying a permanent life insurance policy on a child can guarantee their insurability for their lifetime. They can keep the coverage no matter what happens to their health in the future—even if they develop a medical condition that would make it difficult for them to qualify for an affordable new policy later on.

It’s easier for children to qualify for coverage than adults because they’re young and usually healthy, and the underwriting process tends to be much simpler.

However, coverage maximums for children’s life insurance are often low—not enough to act as a primary life insurance policy when they’re older. For example, Globe Life offers coverage for kids that maxes out at $30,000. Once an adult, the child will likely need to buy another policy with a much higher amount of coverage if they have dependents. Knowing this, consider whether it’s a good use of money to buy a small policy.

Locks in rates for future coverage

Buying a permanent life insurance policy on a child lets you lock in low rates while they are young and healthy. This can be especially true of whole life insurance policies with guaranteed premiums, which will lock in costs for their lifetime (or to an advanced age, such as 121), even if they develop health conditions later in life.

A downside is that your child might need to continue paying premiums for their lifetime. To solve that, you could purchase a policy that is paid off after a certain number of years, so that the child doesn’t inherit a life insurance bill. For example, MassMutual sells whole life policies with fixed premiums for eight, 10, 12, 15 or 20 years, which can be fully paid by the time the child reaches adulthood.

Builds tax-advantaged savings

A cash-value life insurance policy is a type of permanent life insurance that can accumulate tax-advantaged savings for the future. The child’s policy can build cash value that can be used to help pay for college, buy a first home or start a business, among other reasons.

But a small life insurance policy won’t amass much cash value, even after several years.

“The returns available on life insurance are usually too low to move the needle, and the nest egg doesn’t grow enough to be worthwhile,” said Mari Adam, a certified financial planner in Boca Raton, Fla.

Ways to buy life insurance for kids

There are several ways to buy life insurance for children, depending on the type of coverage you want and the size of the policy.

The parent or guardian completes a health questionnaire about the child for the application, and a life insurance medical exam is not required for very young ages, said Mehran Assadi, CEO of the National Life Group. Depending on the answers to those questions, the life insurance company might request the child’s medical records.

Buy from a company specializing in child life insurance

Several companies—such as Gerber Life, Globe Life and Mutual of Omaha—specialize in child life insurance, typically offering coverage between $30,000 to $50,000. Gerber Life’s Grow-Up Plan increases the coverage over time—doubling the death benefit when the child reaches age 18.

The policy can remain in force for the child’s lifetime as long as the required premiums are paid. These are usually small whole life insurance policies, with premiums that are guaranteed to remain the same each year and cash value that grows at a guaranteed rate.

Buy a policy from a traditional life insurance company

Many of the best life insurance companies have a minimum issue age of 0 for their permanent life insurance policies. Policy options can include:

For example:

Some insurers cap children’s life insurance based on a multiple or a percentage of the parent’s coverage or a flat maximum amount. A parent or grandparent is typically the policy owner, and the ownership can be transferred to the child at the age of majority, which is age 18 to 21, depending on the state.

The policies might have a guaranteed insurability rider that lets the insured person purchase additional coverage at specified ages or at certain life events, such as marriage or the birth of a child, without any additional life insurance underwriting.

Add a child term life insurance rider to your policy

Many life insurance companies offer child term life insurance riders. Once added to your policy, it typically provides coverage for all your children under a certain age, such as 18 to 25. Coverage is often limited to $1,000 to $25,000.

A child term rider does not build cash value, but it’s an inexpensive way to buy coverage for a limited period. And the child might be able to convert the policy to permanent life insurance within a certain time frame without new underwriting.

For example, National Life Insurance Co.’s TotalSecure whole life policy offers a child term rider that provides coverage for them until age 25, at which point it can be converted to a permanent policy for up to six times the rider face amount when the child reaches age 25 or marries, or if the primary insured person dies.

Coverage through your employer

Some employers offer low-cost term life insurance coverage for children and other dependents as supplemental life insurance. You might be able to sign up for the coverage when you start a new job and during open enrollment each year. Coverage limits are usually low, such as $15,000 or $20,000.

If you purchase child life insurance through an employer, it’s often not portable, meaning it ends if you part ways with the employer.

Coverage for children of military members

Active-duty military members who have life insurance for servicemembers from  Servicemembers Group Life Insurance can get Family Servicemembers’ Group Life Insurance (FSGLI) for their spouse and dependent children—with up to $10,000 in free coverage for their dependent children. But you can’t convert FSGLI child coverage to an individual insurance policy.

Coverage usually ends within 120 days after you leave the military or when the child turns 18. However, it can be extended past 18 if the child is a full-time student or if they become permanently disabled before age 18.

How much does child life insurance cost?

The cost of child life insurance varies depending on how you buy the coverage. A children’s term rider might cover all of your children at the lowest cost, but the coverage ends when they reach a certain age. Children’s whole life insurance policies will cost more, but the premiums won’t increase and the child can keep the policy for his or her lifetime.

Alternatives to buying life insurance for children

Before you buy life insurance for a child, consider whether it’s the best use of your money. There might be better ways to create financial advantages for a child.

Other tax-advantaged savings options

Even though you can build up some cash value, there are other tax-advantaged ways to save for a child.

“Parents who want to build a nest egg for their child are much better off investing in a 529 college account or one of the new Trump Accounts, as those accounts benefit from multiple tax breaks and can take advantage of the higher returns available from stock and bond investments,” said Adam.

Money can be withdrawn tax-free from a 529 plan for college or other eligible educational expenses, and about two-thirds of states offer a state income-tax deduction for contributions. You usually need to contribute to your own state’s 529 plan to qualify for the tax deduction, but nine states (Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio and Pennsylvania) let you take a tax break for making contributions to any state’s plan. Trump Accounts grow tax-deferred.

Other tax-advantaged options include Roth IRAs (for children with earned income) and ABLE accounts (for individuals with disabilities).

Invest in growth stocks or mutual funds for the long term

You can build up long-term savings for the child without having to pay for life insurance they don’t need yet by investing directly in growth stocks or mutual funds though custodial accounts, such as:

Those investments might be more appropriate for the long term than the fixed-income returns from a universal life or whole life policy, and you don’t have to pay the upfront fees and commissions that you would have with the life insurance policy.

The investments remain in the custodial account until the child reaches a certain age (18 to 25, depending on the state) and then the account is transferred into the child’s name.

Pros and cons of buying life insurance for a child

It’s important to consider the pros and cons before deciding whether you should buy life insurance for your child.

Some parents and grandparents buy life insurance as a way to give the children a head start on their finances, and it could be a nice gift if it’s paid up and the child doesn’t have to pay premiums for the rest of their life. But there are other less-expensive ways to help children build up savings that they can use for the future.