Adding a child rider to your own policy or self-insuring with an investment account are better ways to protect your kids’ future than buying your children a standalone life insurance policy.
Life insurance protects your family against unexpected loss of income. It’s essential for parents, homeowners, and anyone who has financial obligations, but it makes little sense for children to have their own policy.
The best way to insure the life of your child is by adding a child rider to your own policy. You can also save for their future by opening up a designated investment account, such as a 529 plan, or a custodial account, such as a UTMA or UGMA account.
Below, we’ll review the different life insurance policies and child riders available for kids to help you decide what’s best for your family.
Most children do not need life insurance because they do not provide income
A child rider is a relatively inexpensive option to insure your child
529 savings plans and custodial accounts such as UTMAs and UGMAs are the best options to save for you child’s future
People often confuse child life insurance with child riders, but there’s a big difference between the two:
Child life insurance is a standalone life insurance 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 life insurance 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.
|Child life insurance policy||Child rider|
|Who's insured?||The child||The parent or guardian|
|Type of policy||Permanent life insurance||Term life insurance|
|Cost per year||$195.60||$150 (in addition to policy premiums)|
As you can see, it’s less expensive to get more coverage with a child rider compared to a child life insurance policy. In the example above, we used $25,000 as a comparison, but it’s important to note that child riders generally only need to cover the cost of funeral or burial expenses (about $10,000).
Proponents of child life insurance argue that since life insurance rates increase as you age, buying a policy when your child is young can secure coverage for them when they’re older. People also argue that a whole life insurance policy for a child is a great investment.
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 life insurance by the time they’re an adult. The exceptions are if your child has a lifelong disability or chronic illness that would make getting life insurance harder as an adult.
For the average person, funding a whole life insurance policy is prohibitively expensive because whole life insurance costs about five to 15 times more than term life insurance. Maintaining those premiums over the course of your child’s life may become unaffordable over time. Approximately 30% of whole policies are surrendered within the first three years and 45% are surrendered within the first 10 years  . Life insurance for your child is useless once the policy is surrendered.
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.
Here’s how Policygenius’ partner insurance companies handle child riders on term life insurance 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||$10,000-25,000||$5.15||Yes||No|
|SBLI||15 days-23 years||$1,000-25,000||$6.00||Yes||No|
|Symetra||15 day-17 years||$1,000 to $10,000||$4.20||Yes||Only in certain states|
|Transamerica||15 days-18 years||$1,000-99,000||$6.00||Yes||Yes|
The quality of the insurance company matters when choosing which life insurance policy for anyone, but especially for your child. We recommend purchasing a policy from MassMutual if you’ve decided that you need a whole life insurance policy for your kid.
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.
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.
Most people don’t need a standalone life insurance policy for their children. Instead, consider adding a child rider to your own term life insurance policy and saving for their future through alternative savings plans and accounts.
The best life insurance for a child is a child rider added onto your own life insurance policy. Children do not provide income and therefore do not need their own life insurance policy. Adding a rider to your own term policy can provide financial protection against the loss of your child.
You do not need to purchase life insurance for your children unless you have have sufficient disposable income or if your child has specific needs and may not qualify for life insurance as an adult.
Costs vary by company, but whole life insurance costs about five to 15 times more than term life insurance. Most life insurance policies for children are whole life.