Should you buy life insurance for children?

Life insurance primarily helps your dependents cover the bills when a breadwinner dies. If no one depends on your child financially, they probably don’t need coverage of their own. This is why in most cases, getting this type of coverage for children isn’t recommended.

While it’s true that life insurance rates go up as you age, it’s unlikely that your child won’t be able to afford or will be denied a policy as an adult, and their premiums will still be affordable. Further, the only coverage option available for most children, whole life insurance — a type of permanent coverage — is costly to maintain over your child’s entire life, because it's many times more expensive than other coverage options, like term life insurance.

But there are some benefits to buying coverage for children if you have unique financial needs. Learn whether life insurance for your child is a good idea and what we recommend instead.

How does life insurance for children work?

Life insurance for children works much like it does 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.

Unlike coverage for adults, however, options for children are limited. While adults can usually choose between term — the most popular and affordable coverage option for most people — and permanent life insurance, parents who want to buy a coverage for their children only have the option of whole policies. (Term life insurance is not an option for children because it's primarily a coverage option used for income replacement and kids don't have any income to replace.)

Whole is a type of permanent coverage that usually has a cash value savings component in addition to the death benefit. While whole life insurance never expires (which means your kid would be covered for their entire life), whole is five to 15 times more expensive than term.

Most child policies, like Gerber Life Insurance, are marketed as financial tools to invest in educational expenses, lock in affordable premiums, protect your child’s insurability, and cover funeral expenses if your child passes away. 

However, these policies also have downsides:

• They don’t offer competitive rates compared to term life insurance.

• They aren’t necessary to guarantee insurability for your child.

• They come with high administrative fees and low rates of return.

• They may not accumulate enough cash value by the time you need the funds.

Since minors can’t accept life insurance payouts, you can provide better protection for your child by having your own policy that pays out to a guardian (other than yourself) to support their needs should you pass away.

Child life insurance pros and cons

Who needs life insurance for their children?

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 or a child with disabilities. As for locking in premiums, most adults have no issues securing affordable coverage in their 20s and 30s.

If you need to insure your child’s life, it's simpler and cheaper to add a child rider to your term policy — riders are add-ons that can provide supplemental coverage to a life insurance policy. You may also choose this option to cover funeral costs if the unthinkable happens.

Child life insurance vs. child riders

People often confuse child life insurance with child riders, but there’s a big difference between the two:

• Child life insurance is a standalone policy that insures a child’s life. The insurer pays out a death benefit when the child passes away.

• Child riders are optional add-ons to your own policy that pay out a small death benefit if one of your children dies. Coverage is tied to the parent’s or guardian’s policy. 

Benefits of a child rider vs. child life insurance

If all you need is peace of mind should the unthinkable happen, a child rider may be a better option than a standalone child life insurance policy.

• Straightforward coverage. A child rider provides coverage for your child without the complex investing component that child policies have.

• Conversion flexibility. If your child needs lifelong coverage, a child rider can be converted to a permanent policy in the future . 

• Affordability. 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.

Is children’s life insurance a good investment?

Short answer: no. Permanent policies have 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 in general, these types of policies have higher fees and less growth than you’d get from a standalone investment account.

Proponents of child life insurance argue that since rates increase as you age, buying a policy when your child is young can secure coverage for them when they’re older.

While it’s true that life insurance rates increase about 4.5%-9% each year you age, it’s unlikely that a child will be unable to get affordable coverage by the time they’re an adult. The exceptions are if your child has a lifelong disability or chronic illness that would make getting coverage harder as an adult. 

Child life insurance supporters also argue that a whole policy for a child is a great investment. In most cases, however, this is rarely the case.

While the cash value from a whole policy earns interest at a rate set by your provider, often with a guaranteed minimum, for the average person, funding a whole life insurance policy is prohibitively expensive. This is because whole costs about five to 15 times more than term. Maintaining those premiums over the course of your child’s life may become unaffordable over time.

“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 or funding,” says Patrick Hanzel, certified financial planner and Advanced Planning Team Lead at Policygenius. “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.”

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, certified financial planner and advanced planning team lead

The best life insurance products to insure children

A child rider is the best way to protect your family against the unexpected death of a child. Adding a child rider to your existing term life insurance policy is a low-cost way to ensure financial help in case of the unimaginable. 

Child riders by life insurance company

Here’s how Policygenius’ partner insurance companies handle child riders on term policies:

Company	Eligible ages	Coverage amount	Annual cost per $1,000	Asks medical questions?	Add to active policy?
AIG	15 days-18 years	$500-25,000	$5.00	Yes	Yes
Banner Life	15 days-18 years	$5,000 or $10,000	$5.50	No	Yes
Lincoln Financial	15 days-18 years	$1,000-15,000	$5.00	Yes	Yes
Mutual of Omaha	15 days-20 years	$1,000-10,000	$7.20	No	No
Pacific Life	15 days-18 years	$1,000-10,000	$5.50	Yes	Yes
Protective	15 days-18 years	$1,000-25,000	$6.00	Yes	Yes
Prudential	15 days-18 years	$10,000-100,000	$5.15	Yes	No
SBLI	15 days-23 years	$1,000-25,000	$6.00	Yes	No
Symetra	15 day-17 years	$1,000- $10,000	$4.20	No	No
Transamerica	15 days-18 years	$1,000-$99,000	$6.00	Yes	Yes

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Best whole life insurance for children

MassMutual

3.8

Policygenius rating

How we score: Policygenius’ ratings are determined by our editorial team. Our methodology takes multiple factors into account, including pricing, financial ratings, quality of customer service, and other product-specific features.

MassMutual has one of the best dividend payouts of any child life insurance company, meaning the policy’s cash value will grow exponentially better than other competitors and can be used as an alternative savings vehicle.

Pros

• Strong financial stability ratings

• Potential for dividends 

• Offers a variety of permanent life insurance products

Cons

• No option to skip the medical exam

• High premiums

Read our full MassMutual review

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Why we picked it

MassMutual pays higher dividends to its cash value policyholders than many competitors. It has high customer experience ratings compared to other carriers and consistently receives high third-party financial stability ratings, which is especially important when purchasing a lifelong policy.

Alternatives to life insurance for children

A more suitable option for most people is setting up a savings plan to cover your children's future expenses. Traditional savings options, like 529 education plans, stocks, bonds, or UTMA accounts, can be funded with the money you would have contributed toward life insurance. 

• 529 savings plan: These plans are tax-advantaged accounts sponsored by the government. There are two types of 529 accounts: prepaid tuition plans and education savings plans. Both are exclusively for higher education expenses and qualified withdrawals are tax-free.

• Custodial account: Parents can save and invest in a custodial account held in the name of their child, such as UTMA (Uniform Transfers to Minors Act) or UGMA (Universal Gifts to Minors Act) to build savings for their child. Custodial accounts are handled by the parent or guardian and transferred to the child when they turn 18 or 21.

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

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 policy, rather than life insurance for your children, so that the proceeds can provide for them if you pass away unexpectedly. 

You can also consider adding a child rider to your own term policy and saving for their future through alternative savings plans and accounts.