How Does Life Insurance For Children Work?
Child life insurance is most often a whole life insurance policy or universal life insurance, both of which are types of permanent life insurance. Some companies offer a children’s term life insurance policy, but it’s uncommon. You can also insure a minor through a children’s term life insurance rider added to an adult’s life insurance policy.
With whole life and universal life, a small portion of your premium payments go into an interest-bearing account called “cash value.” The equity accumulated in the cash value account can be withdrawn by the policyholder and spent on college expenses, debts, or anything else.
If the child dies while the policy is active, the insurance company will pay the death benefit to the beneficiaries.
Should You Buy Life Insurance For Kids?
The primary benefit of buying a child’s life policy is to pay for funeral costs and provide a safety net that gives loved ones the financial means to step away from work or other economic responsibilities during the grieving process.
There are other benefits, too, such as locking in very low prices and guaranteeing that the child can purchase additional coverage as an adult even if they are in bad health when they opt to add more.
It’s wise to speak with a financial advisor who can assess all your needs to recommend the best option.
Pros And Cons Of Buying Life Insurance For A Minor
Generally speaking, life insurance is valuable financial protection for any individual (adult or child). However, buying life coverage for a child is a matter of preference because of the pros and cons.
You should speak with a competent financial professional to help determine if coverage for your kids or grandkids is right for you.
- Future insurability: One of the many benefits of life insurance for children is the guarantee that they can buy additional coverage as adults. The insurance company will allow the insured child to purchase more coverage (up to a certain amount) without requiring evidence of insurability. That means their health or lifestyle cannot prevent them from getting the additional insurance. For example, if your child were to develop a high-risk medical condition such as cancer in their 20s or 30s, the policy you purchased now would entitle them to buy additional coverage. Their cancer would not prevent them from obtaining additional insurance.
- Final expenses: Although a child’s chances of dying are slim, it does, unfortunately, happen. An average burial in the USA costs around $10,000, and cremation cremation costs as much as $6,000. The death benefit payout can cover their funeral expenses, so you don’t have to resort to going into debt or fundraising via platforms like GoFundMe. That peace of mind is why most parents opt to insure their children.
- Savings plan: Cash value in a permanent life insurance policy is like a behind-the-scenes savings account. Every time you make a payment, a percentage of the revenue goes into the cash value account. Plus, it usually earns interest, causing it to grow even more. The policy owner is entitled to withdraw funds from this account and spend the money in any way.
- College loan protection: The average college student owes $37,090 in federal loans. A child’s life insurance policy can ensure these debts are paid off if the child passes while these loans are outstanding. That’s especially valuable if you cosigned on some of their loans.
- Locked-in low prices: The cost to insure a child’s life is minimal since they are so young. Buying coverage for a minor at a young age allows you to secure a very low price that will never increase as they age.
- Low amounts of coverage: Most children’s life insurance plans offer less than $100,000 in protection. Adults often need high amounts of coverage ($500,000+) to ensure they can replace their income or pay off large debts such as a mortgage. Buying ≤ $100,000 for a child will do little to help cover their life insurance needs as an adult.
- The worst mechanism for saving money: Life insurance isn’t the best tool if you aim to build up cash for your child’s future. Yes, permanent children’s life insurance plans build cash value over time, but the amount is minimal. Even if 100% of your premiums were to go into the cash-value account (it’s closer to 50%), it’s still only going to amass a few thousand dollars at best. If your sole objective is to save money for a child, other financial products would be superior.
- Meager chance of payout: There is a very slim chance the policy will pay the death benefit because children rarely die. According to the CDC, the chance of children 1-4 years dying is 25.0 per 100,000 (0.025%). For children 5-14 years, it’s 14.3 per 100,000 (0.0143%).
How Much Does Children’s Life Insurance Cost?
Life insurance rates for a child depend on age, gender, coverage amount, policy type, health history, and the insurance company you choose.
Below is a chart showing the monthly cost of Mutual of Omaha’s children’s life insurance for various coverage amounts and ages. Mutual of Omaha charges the same price for males and females.
| AGE | $10,000 | $25,000 | $50,000 |
|---|---|---|---|
| 0-4 | $4.61 | $10.02 | $19.04 |
| 5-9 | $5.43 | $12.08 | $23.17 |
| 10-14 | $6.15 | $13.87 | $26.75 |
| 15-17 | $7.75 | $17.87 | $34.75 |
The life insurance quotes below (monthly premiums) for higher death benefit amounts will likely come with additional underwriting requirements.
| AGE | $250,000 | $500,000 | $1,000,000 |
|---|---|---|---|
| 1 | M: $112.39 F: $88.77 | M: $216.30 F: $169.49 | M: $426.30 F: $332.68 |
| 5 | M: $132.30 F: $103.64 | M: $255.68 F: $199.24 | M: $505.05 F: $392.18 |
| 10 | M: $161.18 F: $123.99 | M: $312.99 F: $239.49 | M: $619.68 F: $472.68 |
| 15 | M: $193.99 F: $146.52 | M: $378.18 F: $284.11 | M: $750.05 F: $561.93 |
Requirements To Buy Life Insurance For A Juvenile
Only the following people can purchase life insurance for a child: a parent (step, biological, or adoptive), grandparent, great-grandparent, or legal guardian.
It’s worth noting that grandparents can buy life insurance for grandchildren without receiving consent from the child’s parents.
| Underwriting Requirements | <$100,000 in Coverage | >$100,000 in Coverage |
|---|---|---|
| Minimum age | 14 days | |
| Medical exam | No | |
| Questions about health | Yes | |
| Extensive questions about full medical history | No | Yes |
| Medical records subpoenaed | No | Yes |
| Can buy online without talking to an agent | <$50K: Yes >$50K: No | No |
| Typical approval time | Instantly | 2-3 weeks |
| Sufficient owner's income* | No | <$250K: No >$250K: Yes |
| Owner's own life insurance** | No | Yes |
**High coverage amounts typically require that the policy owner has at least double the coverage they seek for the child.
Alternatives To Children’s Life Insurance
A juvenile life insurance policy is not the ideal financial vessel if your immediate goal is to pay for their college expenses, help them buy a home in the future, or address some other significant cost.
- 529 college savings plan: These are flexible accounts meant specifically for college expenses. The earnings grow tax deferred and can be used at any school in the nation.
- Custodial account: This is a special type of savings account managed by an adult (usually a parent or grandparent). The account holder decides what investment assets are utilized and when and how the money is used. The account typically transfers to the child once they reach 25 years of age.
- High-interest savings account: These savings accounts earn higher-than-average interest rates. According to Fortune, the average savings account interest rate in 2024 is .46 %. However, a high-interest savings account can earn up to 10 times that or more.
Frequently Asked Questions
Mutual of Omaha offers the best life insurance for children because of its low rates and valuable riders, which are automatically included at no extra cost. Plus, Mutual of Omaha has been in business since 1909 and has an A.M. Best rating of A+, so you can trust it has the financial means to pay its claims.
If you want a child’s term life insurance, check into Aflac because they are one of the few providers that offer it.
Regardless of which company you consider, investigate the insurer’s financial strength, how the life insurance works, the cost, and any riders that may be included with the policy. The best life insurance companies have an A rating or higher with AM Best and typically have a positive online reputation.
Children with specific health issues can still qualify for life insurance depending on the nature of their particular condition(s). In general, most congenital disabilities or mental development disorders such as Down syndrome will be declinable conditions. However, ongoing health conditions such as asthma or diabetes are insurable but may require a higher premium.
Children’s whole life insurance is generally the best type of policy because the coverage is guaranteed to last forever, and the premium cannot change for the rest of the child’s life. Also, it guarantees that the child can buy more coverage in adulthood. Buying your child a term policy, while it has a lower rate, will expire typically around their 25th birthday, leaving them without insurance.
Universal and whole life insurance for juveniles builds cash value over time. The policyholder can cash out this money anytime and use it for any purpose.
Some life insurance companies automatically change the policy owner once the child turns 18, but most do not. For example, the Gerber Grow Up Plan automatically makes the child the policy owner on their 21st birthday.
Conversely, Globe Life children’s insurance and Mutual of Omaha do not. Ownership can be changed with those companies (and most others), but only when the policy owner requests it.
An uncle or aunt can buy life insurance for their niece or nephew only if they have legal guardianship. Furthermore, all life insurance companies would require copies of the court papers to prove the guardianship.
Yes, legal guardians can buy life insurance for a child. It’s important to remember that you’ll be required to provide copies of the court documents showing the guardianship decree.
Generally, buying kids their own life insurance policy is better than insuring them via a rider attached to an adult’s policy. That’s true even though insuring kids via a rider results in a slightly lower premium. A standalone policy is superior because they have coverage that lasts their entire life with a fixed premium schedule. If you only insure them via a rider, once your policy ends, so does their coverage.
Also, a child rider frequently imposes low coverage limits on the children. In contrast, a standalone policy would enable you to insure them for much higher amounts. Finally, standalone policies offer the great benefit of guaranteed future insurability, promising them the ability to buy more coverage as adults. A children’s term life insurance rider does not come with a guaranteed insurability benefit.
Babies are eligible for life insurance. Generally, a baby must be at least 14 days old before a life insurance company will allow you to take out a policy on the child.
Globe Life and New York Life sell children’s life insurance to New York residents.
