Q

Should you buy life insurance for children?

A

Life insurance for children is unnecessary since you don't rely on them financially. Alternatives like 529 plans can help you save for their future.

Amanda Shih author photoPat Hanzel

By

Amanda Shih

Amanda Shih

Editor & Licensed Insurance Expert

Amanda Shih is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Her work has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

&

Patrick Hanzel, CFP®

Patrick Hanzel, CFP®

CERTIFIED FINANCIAL PLANNER™ & Advanced Planning Team Lead

Patrick Hanzel is a CERTIFIED FINANCIAL PLANNER™ and Advanced Planning Team Lead at Policygenius.

Updated March 2, 2021|4 min read

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In most cases, it’s not recommended you buy life insurance for children. Life insurance primarily helps dependents cover the bills when a breadwinner dies. Assuming no one depends on them financially, your children don’t need coverage.

While it’s true that life insurance rates go up as you age, it’s unlikely that your child will get priced out of or denied a policy as an adult. Life insurance for children is usually whole life insurance, which is five to 15 times more expensive than term life insurance, and costly to maintain over your child’s lifetime.

There are rare situations when child life insurance makes sense, like if your child has an illness that would make it harder for them to buy a policy as an adult. Otherwise, alternatives are more cost-effective.

Key Takeaways

  • Life insurance is meant to be used as income replacement

  • Most policies for children are whole life insurance, which is rarely cost-effective

  • Child life insurance is worth considering if your child has a chronic illness that will worsen as they age

  • Alternative savings vehicles like a 529 will better prepare for your child's future

How does life insurance for children work?

Life insurance for children works much like life insurance for adults: the policyholder pays premiums and the policy pays out to a beneficiary (in this case, a parent or guardian) if the insured passes away while the policy is active. Because most life insurance for kids is whole life, this coverage lasts their entire life.

Most child policies, like Gerber Life Insurance, which you’ve probably seen advertised, are marketed as financial tools that serve as an investment for educational expenses, lock in affordable premiums for your child, protect your child’s insurability, and cover funeral expenses if your child passes away. 

However, unless your child has a serious medical condition, these policies:

  • Don’t offer competitive rates compared to term life insurance 

  • Aren’t necessary to guarantee insurability for your child

  • Come with high administrative fees and low rates of return

  • May not accumulate enough cash value by the time you need the funds

You can provide better protection for your child by having your own life insurance policy that pays out to a guardian—minors can’t accept life insurance payouts—to support their needs should you pass away.

Who needs child life insurance?

These cases are rare, but you may benefit from buying life insurance on your child if:

  • Your child has a health condition that will worsen as they age

  • Based on family medical history, your child may develop a serious health condition early in life

  • You or your loved ones rely on your child financially

If you need to insure your child’s life, it's simpler and cheaper to add a child rider to your term life insurance policy. A child rider provides a death benefit if any of your children pass away without the complex investing component, and can be converted to a permanent policy in the future if your child needs lifelong coverage. 

A child rider is more affordable than a full child life insurance policy. It usually costs about $5 per year for every $1,000 worth of coverage. So, you might pay $50 more per year for a $10,000 child rider.

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How much does life insurance for children cost?

The cost of child life insurance varies based on your child’s age, the size of the death benefit, and when the premiums will be fully paid (known as the paid-up age). The table below compares sample monthly premiums for a child life insurance policy, an adult whole life insurance policy, and an adult term life insurance policy.

POLICY TYPE         AGE AT PURCHASEMONTHLY PREMIUMDEATH BENEFITTERM LENGTH 
Child life insuranceLess than 1 year         $101.58        $250,000     Lifetime    
Whole life insurance35 years       $261.00        $250,000     Lifetime    
Term life insurance 35 years       $26.37         $250,000     30 years    

Methodology: Sample child life insurance rate is based on a $250,000 MassMutual policy for a 1-year-old male in New Jersey, with a guaranteed insurability rider and paid up at age 65. Sample whole life insurance rate is based on a $250,000 MassMutual policy for a 35-year-old male nonsmoker in New Jersey with a Preferred health rating, paid up at age 100. Term life insurance rate is based on a composite of policies offered by Policygenius for a 35-year-old male nonsmoker in Ohio with a Preferred health rating, qualifying for a $250,000, 30-year policy. Individual rates will vary as specific circumstances will affect each customer’s rate. Rate illustration valid as of 3/01/2021.

Is children’s life insurance a good investment?

Short answer: no. Permanent life insurance has a cash value component that grows over time. The cash value is why insurance companies pitch life insurance for kids as a savings vehicle for your child’s future. 

But life insurance for children isn’t a smart investment. The cash value earns interest at a rate set by your provider, often with a guaranteed minimum.  However, whole life has higher fees and less growth than you’d get from a standalone investment account.

Patrick Hanzel, Policygenius’ Advanced Planning Specialist and Certified Financial Planner explains, “A lot of life insurance agents sell child policies as a great ‘investment’ or perfect place to save money for education costs in the future. However, these policies should never be used as a primary source of college savings/funding. The policies take many years to accumulate value, and oftentimes won't even have broken even (when cash value available for loan is greater than total premiums paid) by the time the funds are needed."

quote

Child life insurance policies are often sold as a great ‘investment’, but they shouldn't be used as a primary source of college savings.

- Patrick Hanzel, Advanced Planning Specialist and Certified Financial Planner

Do you need life insurance to protect your child’s insurability?

Many parents purchase life insurance for their children because it sounds like a good way to guard against worst-case scenarios. The reasoning is that if you lock in premiums now, your child won’t need to buy a more expensive policy as an adult, and they’re protected in case they develop a medical condition. 

In reality, you don’t need to protect your child’s insurability unless you have a family history of serious medical conditions that develop early in life. As for locking in premiums, most adults have no issue securing affordable life insurance in their 20s and 30s.

Alternatives to child life insurance

If you’re looking for a way to save for your child’s future college or nest egg, these alternatives to children's life insurance give you more bang for your buck:

  • 529 plan: These plans are exclusively for higher education expenses and qualified withdrawals are tax-free.

  • IRA: If your child earns money, manage an IRA savings account for them and match their earnings to jump-start retirement savings.

  • Custodial account: Parents can save and invest in a custodial account to build savings for their child and hand the account off to them when they turn 18 or 21.

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A child life insurance policy mainly makes sense for children with health problems who might have difficulty qualifying for life insurance as adults. If you’re looking to save for your child’s future, a life insurance plan isn’t the best way to invest. To protect your children financially, it’s more important to have your own life insurance policy so that a trusted guardian can use the proceeds to provide for them if you pass away.

Life insurance for children FAQ:

Do you need life insurance for children?

Most people don’t need life insurance for their kids. If your child may be ineligible for a policy as an adult for health reasons or if you rely on them for income, then you may consider a policy.

How much does child life insurance cost?

A $50,000 policy for a juvenile costs $30-50 per month, while a child rider for term life insurance might cost $20 per month for the same coverage amount. As coverage amount and age increase, so do premiums.

Is child life insurance a good investment?

Child life insurance is not a good investment. The cash value of the policies grows at a lower rate and comes with higher administrative fees than a traditional investment account.