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From the Learning Center

Should You Take Out a Life Insurance Policy on Your Child?

By Lloyd Harvey·December 20, 2022·4 Minute Read

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People often purchase life insurance as a way to help provide some financial protection for their loved ones if they were to pass away. But what about purchasing policies on your children? 

First of all, let’s define “life insurance.” Life insurance is a contract between a policyowner (who may also be the insured) and the insurance carrier to pay a death benefit to the beneficiaries chosen by the insured if the insured passes away while their policy is active – as long as the premiums have been paid.

Unprecedented events can cause people to wonder, “Should I buy life insurance on my child?” As you look into a life insurance policy for your child, there are several types of policies to consider as well as the pros and cons.

What Does Life Insurance on a Child Look Like? 

You may have come here today to learn more about “child life insurance.” What we’ll be delving into is not life insurance specifically for children, but a policy that can be taken out on a child’s behalf.

A life insurance policy on a child is similar to standard life insurance policies in that, if the insured were to pass away, a death benefit would be paid out as long as the policy was in force. The difference is: for the life insurance policies that cover the adult, the adult is typically the insured and the owner. Whereas a life insurance policy for a child, the child is the insured, but the parent, grandparent, or legal guardian is the policy owner.

The parent or legal guardian can also be the beneficiary who receives the death benefit. As a parent or guardian, it can be difficult to consider purchasing a life insurance policy on a child – in fact, most people would prefer to never think or talk about it.

However, even children are susceptible to serious illnesses or childhood cancers. A life insurance policy on a child can help:

  • To cover end-of-life expenses and medical costs if a child were to pass away unexpectedly
  • To help ensure affordable coverage as an adult
  • To help build a cash value for the child 

Life insurance policies on a child can be either term life insurance or permanent life insurance policies:

Term life insurance: While a parent or guardian can’t buy a term life insurance policy for a child, some insurance carriers offer term life insurance policies for adults that could allow you to add a rider to cover your children until they reach a certain age. After that time, the coverage may be able to convert into a permanent policy for the child at an extra cost. 

Forbes - Ranked #1 “Best Life Insurance Company” in the U.S. by thousands of real customers. Get a quote.

Permanent life insurance: This is the typical type of life insurance for a child. As long as premiums are paid, these policies can provide lifelong coverage for the insured. Premiums are generally guaranteed, so they will not go up over time, and the policy can also build cash value, which can be accessed for any reason while the child is alive. Permanent life insurance can offer many benefits, including lower premiums than if an adult were to purchase a policy, the cash value component, the ability to withdraw from that cash value at any age, and more. 

Are you still wondering, “Should I buy life insurance for my child?” Here are some things you could consider: 

Pros and Cons of Life Insurance on Children  

Purchasing life insurance on a child can have its benefits. It is one way to provide some financial protection for your family if you were to lose a loved one, and a way to help a child stay insurable for their lifetime. 

Pros of life insurance on a child: 

Funeral expenses: Both term life insurance and permanent life insurance can provide this benefit – it would be a rider on a term life insurance policy. If your insured child were to pass away, the death benefit could help cover funeral expenses and help provide a little relief during a very difficult time. 

Future insurability: It is more common for people to develop health issues as they grow and age and certain health issues can limit insurability. Purchasing a permanent life insurance policy for a child provides them lifelong coverage, no matter what health conditions could develop later on. 

Cash value: Permanent life insurance policies often have a cash value component. Over time, the cash value can accumulate tax-free and offers a rate of return. This amount can be distributed from the policy for any reason.

Cons of life insurance on a child: 

Long-term commitment: Getting a permanent life policy might mean that you will be responsible for paying a premium on your child’s life insurance policy for years. Some owners will transfer the rights of the policy to the child at the age of 18 to 25.

Low rate of return: While permanent life insurance policies can grow cash value, the rate of return can be much lower than other options. 

While we’re talking about life insurance options…

Life insurance can be a weighty topic to consider, whether you’re purchasing for yourself or your child. There is no one-size-fits-all life insurance policy, and the options and carriers can feel overwhelming. Bestow wants to simplify the process of applying for term life insurance.

While Bestow does not offer child life insurance or a child rider to add onto a term life insurance policy, it can be a good place to start on providing some financial protection for your family if you were to unexpectedly pass away. 

If you’re curious about taking the first step of looking into term life insurance, you can easily request a quote, and the whole application process takes as little as five minutes. Apply online, anywhere, for terms up to 30 years and coverage up to $1.5 million.

Rates start as low as $11 per month. It’s comforting to know that if you were to pass away, your loved ones – including your children– would receive some financial protection.