What Is Life Insurance for a Child?
Child life insurance is a type of policy designed to provide financial security for your child in the event of an untimely death. The amount of coverage available varies, but typically starts around $25,000 and can go up to $500,000. This type of policy is typically purchased by a parent or legal guardian for their child at a young age, with premiums that are usually much lower than those for adult life insurance policies.
Child life insurance provides families and loved ones with protection from the financial burden that comes with unexpected deaths. It can help cover funeral costs and other expenses, cover accumulated costs like healthcare and also provide surviving family members with a financial safety net during difficult times.
Additionally, depending on the type of life insurance policy you choose, it can also offer additional benefits to the child, such as cash value growth over time to help with college tuition or access to tax-free savings plans in the child’s savings account.
Why Life Insurance for Children Matters
Life insurance is typically reserved for people whose loved ones financially depend on them. Since you don’t rely on your children’s earnings, life insurance for children is unnecessary in most situations.
The main benefits of child life insurance are that it guarantees insurability for the child as they mature into an adult and locks in the lowest rates for them. If your child is healthy, this isn’t that important. Maintaining whole life insurance throughout their childhood is costlier than purchasing a term policy when they become an eligible adult.
Many child life insurance policies also tout cash value as a savings vehicle for the child’s future education and other financial needs, but in reality the interest rate is often lower than other investment opportunities, like college savings accounts.
However, if your child is unlikely to be able to find affordable coverage as an adult, child life insurance can be worth it. These scenarios include your child being born with a disability or chronic illness or your family medical history including major health complications that present at a young age.
Coverage Options and Considerations
When buying child life insurance, there are several factors and insurance options to think about including the amount of coverage, life insurance costs, life insurance rates, monthly premiums, health conditions (medical exams) and how long you want the policy to last (most policies run until age 18 or 21).
Some policies may have restrictions on how you use the death benefit, so it’s important to understand them before purchasing. Compare different types of policies and providers to ensure you get the most comprehensive coverage for your needs at the best rate possible.
When researching child life insurance policies, there are a few different options to consider, and you’ll need to decide whether you want a term life or whole life insurance policy.
Term Life Insurance for Children
Term life insurance is the most common type of policy and usually offers coverage for a set period, such as 10 or 20 years. This type of policy typically has lower premiums than permanent policies but doesn’t offer any cash value benefits for the policyholder. This option is best for someone seeking final expense life insurance.
Permanent Life Insurance for Children
A permanent life insurance policy provides more coverage options and flexibility and can build up cash value over time.
Children’s whole life insurance policies are a type of permanent life insurance coverage designed for children 14 days old to 17 years old. This type of coverage provides financial protection for your child through premiums that are guaranteed to never increase as long as the premium payments are current.
Child-indexed universal life insurance (Child IUL) is a financial tool that offers a unique combination of life insurance coverage and investment opportunities for children. It provides a long-term savings strategy that can help secure their financial future and provide them with valuable benefits as they grow. An indexed universal life insurance policy for a child gives you the opportunity to leverage a small amount of after-tax money while your child is a minor into a lifetime of tax-free financial benefits. To maximize the benefits for college, the policy should be purchased as soon as possible after the child’s birth.
Factors To Consider When Choosing a Policy
Before signing with a life insurance provider, consider factors like cost, coverage amount, child rider availability, customer service ratings, company financial strength ratings and payment terms. We look at each of these factors in detail below:
- Cost: The cost of life insurance depends on a host of factors, including your health status, age, gender, lifestyle and hobbies, policy details and more. It also depends on the underwriting formulas of each provider, meaning that the same policy could vary in price between insurers.
- Coverage amount: Consider how much coverage your family needs for security. Determine the death benefit amount based on your income plus debt obligations and future expenses for children.
- Child rider availability: Not all life insurance policies offer a child rider option, narrowing down your policy options if that is important to you. Beyond insuring your child, term and whole life insurance policies may include riders that add benefits, such as accelerated death benefit riders, which allow for early payouts in cases of terminal illness or injury.
- Customer service ratings: It’s important to understand any restrictions on how the death benefit can be used and if there are any tax implications associated with the policy. The policy contract will enclose this information.
- Financial strength: One of the most important aspects of a potential life insurer, financial strength signals the likelihood of the company being able to pay large claims years or even decades into the future. Start with reputable third-party credit rating agencies like AM Best.
- Payment terms: When the unthinkable happens, you want to get the most out of your death benefit to limit stress during a deeply emotional time. Make sure to understand any restrictions on how the death benefit can be used and potential tax implications imposed on the sum.
Steps To Obtaining Child Life Insurance
When shopping for a child life insurance policy, begin by considering your family’s individual needs and financial situation. Determine the coverage amount you require and then compare different providers and their offerings to find the best life insurance company at a premium payment you can afford. Some offer lower rates, different life insurance plans and insurance riders.
Meet with several insurance agents or financial advisors to gain competitive rates, comprehensive coverage amounts, add-on child rider availability, customer service ratings, company financial strength ratings and payment terms. During this learning process, you may even want to explore family life insurance plans or life insurance plans for parents.
Once you have identified a few policies with low rates that meet your budget and coverage requirements, start the application process. This includes providing additional information about yourself or your child. Before signing any documents, review all policy terms carefully to ensure you understand them fully. Finally, make sure payments are kept up-to-date to keep the policy valid at all times. Most insurance companies offer automatic payments options.
The Bottom Line
Having life insurance for your child has a few benefits. It provides peace of mind and emotional security should something happen to your child, while offering tangible financial security for their future if you purchase a whole life policy. However, it may not be the right choice for everyone. Talk to a financial advisor to determine the best way to start saving for your child’s future. If you’re looking for a policy, get life insurance quotes from multiple companies to make sure you find the best fit for your family’s needs.
Frequently Asked Questions About Life Insurance for Children
Yes, child life insurance policies are designed to provide financial security for your family in the event of an untimely death. The amount of coverage available varies, but typically starts at around $25,000 and can go up to $500,000.
You can purchase a whole life or term life insurance policy for your child. Term life is the most common type of policy and typically covers 10 or 20 years. This type of life insurance policy typically has lower premiums and lower rates than permanent life insurance policies, but doesn’t offer any cash value.
Life insurance companies that sell individual policies for children typically require the child to be at least 14 days old before they’ll issue a policy.
While you don’t need to buy life insurance for your child, it can help with the financial considerations for the family if the child passes away and there are significant expenses left to settle, such as funeral expenses and healthcare-related costs. By purchasing life insurance for your child at an early age, you also take advantage of lower premium costs, the opportunity with permanent life insurance to build cash value and an often forgotten benefit of future insurability when the child becomes an adult, even if they have health issues.
