Should I Buy Life Insurance for My Children?

It is a question we hear occasionally (not frequently) from parents wondering if they should buy life insurance for their children. The thought goes against the grain of the concept of why we carry life insurance in the first place. To protect the family provider, the main breadwinner, or a spouse who provides caregiving services in the household— should they die and leave the family without financial support. They are the ones who are targeted to buy term life insurance to last until the children grow up, or to carry permanent life insurance coverage as a lifetime investment that could grow more valuable over time.

Do You Really Need Life Insurance for Children? The Answer is No.

Parents get emotionally hooked when they see television ads promoting the need for child life insurance to pay for funeral expenses if the child tragically died, or to act as a savings account for the future of that youngster. The rationale is that locking in life insurance rates during childhood is inexpensive. It is a surefire way to maintain insurability if a child develops illnesses later in life that would exclude their eligibility for life insurance.

The short answer to the question of whether you should purchase life insurance for a child is ‘NO’. But nothing is ever that black or white. Genetic conditions within family clusters are a real thing. A child of those parents might indeed be predisposed to developing that illness later on and that could be reason alone to purchase a term life insurance policy for that child as a protection for the ‘what if’ in life. But it’s not a compelling enough reason for most families.

Life Insurance Savings Plans versus 529 College Savings Plan

A term life insurance policy on a child is a simple, straightforward product. It could last up to 30-years, and ownership of that policy could be transferred to the minor in adulthood. But the child life insurance plan coverage touted by some companies is presented as a college savings plan, designed to help parents set aside money for their child’s college education. It specifically sells whole life insurance, a cash value product that features a savings component that is projected to grow over the years.

But the guaranteed “payout” at the policy’s maturity might not be as robust as expected, with the total value ranging from as low as five-figures, to as high as low six figures. It all depends on the performance of the life insurance company’s dividends, tied to their profits.

Plus, the cost of buying that more expensive whole life policy is much higher than the price of a level term life insurance policy with a potentially higher guaranteed level amount. That is why many financial experts are not big fans of these ‘whole life child life insurance’ policies.

Additionally, if you are like most American parents, you will probably start investing in a 529 College Savings Plan upon your baby’s birth to pay for a college education. It is a commonly used investment plan designed with educational tax breaks. The pros and cons of this plan versus child life insurance plans could be worthy of a longer discussion that you should probably have with your accountant or tax adviser.

Adults Need Life Insurance More Than Children

The bottom line is that on the topic of life insurance and children, adults need it much more than they do. That policy will act as an income replacement for your family, to cover the debt, and yes, to pay for future family expenses such as a child’s college tuition.

There is even a way to include your children under your term life policy by purchasing a “child rider” option to the contract. It doesn’t cost much to pump up that policy you buy on YOUR life that would have a small death benefit built in if your child passed away. You can opt for a child rider for all of your children.

But if there is a chance that your family’s genetic history might significantly increase the likelihood that your child will develop a debilitating medical condition that could exclude them from qualifying for life insurance as an adult, or of making that policy prohibitively expensive, you have a legitimate reason to buy a term life policy on your child. It could prove to be valuable insurance for the future.

To clarify, when the insured person is a minor, the purchasing adult generally owns the life insurance policy until the child reaches adulthood (dictated by each state’s law). At that point, ownership of the policy can be transferred to the child.

If you have more in-depth questions about why you are considering life insurance for your children, reach out to one of our licensed agents to help guide you. You can opt to speak to a live agent, shoot us an email, or start by filling out a free, no-obligation quote to compare instant rates from several carriers to get an idea of how much a term life policy for your child would cost.