Some parents wonder whether they should buy life insurance for a child and what that process is like. Although purchasing life insurance for a child is not always a good idea, it can be the right answer for certain families. 

A life insurance policy can be used to give money to children, or it can offset potential risks if your family has a history of genetic medical disorders like diabetes.

Knowing the benefits and disadvantages of buying a life insurance policy for a child can help you decide if it’s helpful for your family.

What is Life Insurance?

A life insurance policy is a legal agreement between a policyholder and an insurance provider. In exchange for your premium payments, the provider will give your beneficiaries a lump sum known as a death benefit when you pass away. 

In what ways does life insurance for kids work?

Insuring a child’s future is like insuring an adult’s future. A beneficiary such as a parent or a guardian receives a payment from the insurance if the child dies while the policy is in effect. 

Life insurance for children can be a financial tool. It can serve as an investment for college tuition, secure cheap rates for your child, preserve your child’s insurability, and pay for burial costs if your child dies.

Whole life insurance policies are standard for children’s life insurance policies. The policyholders will receive lifetime coverage if they keep up the premiums. Premiums are fixed so they won’t rise over time. 

Part of the premium is also invested so that the child can access it while they are still living.

It’s not possible to buy a term life insurance policy for a child, which would only cover them for a set period of time. 

If you get term life insurance for yourself, you may be able to add a rider to cover your children until they reach a certain age. The coverage would then be converted to permanent plans for them at an additional fee.

Who Needs Life Insurance for Their Child?

You only need to buy life insurance for your child if you have a family history of early-onset medical issues. 

For example, if people in several generations of your family have had an autoimmune disease, there’s a chance one of your kids can have it too. Since healthy habits may not support their immune system, they may be prone to developing life-threatening illnesses. This may make it harder for them to buy life insurance.

For the most part, people in their 20s and 30s have no problem buying low-cost life insurance.

You can insure your child’s life by adding a child rider to your term life insurance policy, which is both easier and cheaper. You can also use this option to cover funeral expenses if an unexpected death occurs.

Children’s life insurance policies can be converted to permanent policies if a child needs long-term coverage in the future.

Instead of purchasing a whole life insurance policy for a minor, you can get a child rider. In most cases, the annual cost per $1,000 of coverage is around $5. In this case, a $10,000 child rider will cost you an additional $50 each year.

The Benefits of Purchasing Life Insurance for Your Child

The main purpose of buying life insurance is to ensure that your loved ones will be taken care of financially if you die. Your children’s life insurance isn’t always necessary since you don’t rely on their income. 

However, buying insurance for your kid may provide you with the following advantages.

• Insurance Rates are Lower for Children

If you need life insurance for a newborn, there is no better time than now to buy it. Each year of life brings an increase in rates. 

However, you or your child will have to fork over a lot of money over time. Because of these low rates for children, though, the total amount paid over time can still be less than the amount paid in the short term.

• It Guarantees Your Child’s Insurability in the Future

Your child will be covered even if they develop a medical ailment later in life by purchasing a life insurance policy for your child. 

As a bonus, many insurance companies offer riders that allow you or your child to acquire more coverage in the future without undergoing a medical exam or establishing insurability.

You’re not just securing your child’s future insurability by purchasing life insurance. You’re also assuring that your youngster will be covered if they decide to take up a risky hobby.

• It Can Earn Cash Value

A whole life insurance policy’s premiums are used to generate cash value. Because the insurance cost is lower and the duration of the policy is longer, a bigger percentage of the premium goes toward the cash value when purchasing coverage for a child.

• Funeral Expenses Will Be Covered

Purchasing a life insurance policy to pay for your child’s potential funeral costs is something that no one wants to think about. Children are usually healthy and live a long life, even more so if you support their physical and mental health. 

However, in the event of a death, a life insurance policy will help pay the costs of final expenses — especially when you and your loved ones are grieving.

It may also allow the family to take time off from work to grieve the loss of their child. Your personal life insurance policy may be the best option if you want to insure your child’s funeral expenses but aren’t interested in purchasing a whole life insurance policy.

Why Do Some People Oppose Child Life Insurance?

While there are benefits to getting life insurance for your child, there are also a few disadvantages. For instance, fees can take up a big portion of a payout, depending on your insurance provider and your purchased policy. 

It also doesn’t offer a very high rate of return—roughly equal to that of a certificate of deposit (CD) at a bank. And when it comes time to pay tuition, you’ll have to pay fees to get your funds.

If you buy life insurance for your children, they can only add a certain amount to their policy as they get older. That may not be enough to provide for their family in the long term.

• Different Life Insurance Options for Children

There are several ways to save money instead of paying insurance premiums. An unexpected funeral or other unexpected expense can be covered with three to six months of living expenses.

A rider on your term life insurance policy (or your spouse) can cover your dependent children if you don’t have the cash on hand. 

For a basic policy, a rider is an add-on. Similar to customizing your automobile with additional options and features, you can do the same thing with your policy. This is the best option if you’re looking for an inexpensive rider that covers everything.

Work with an experienced financial advisor to see if life insurance for your children is a good idea. Try dealing with an independent insurance broker who can help you get the best coverage at the lowest price.

About the Author

Imani Francies writes and researches for the life insurance comparison site, QuickQuote.com. As a mom of two, she stays up-to-date with new life insurance trends to help parents make wise decisions for their families.

Do you have life insurance for your children?

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