Child Life Insurance: What Is It and Should You Buy It?

We all want our children to live long, healthy lives, so child life insurance may not seem like a high priority. It’s worth considering in rare circumstances where you rely on your child’s income. 

What is child life insurance?

Child life insurance protects the life of a minor and is often obtained by a parent, guardian, or grandparents.

In general, these policies are whole life, which is a sort of permanent life insurance. This means that the child’s coverage will span his or her entire life, as long as the premiums are paid. Coverage amounts are often minimal, frequently under $50,000, and premiums are locked in, which means they will not increase. According to Quotacy, a life insurance company, the average yearly cost for a $25,000 policy covering a baby is $150.

One advantage of whole life insurance is that it increases cash value — the policy’s reserve component. A percentage of the premium goes toward the cash value, which increases over time.

At certain ages, such as 21, the child can acquire ownership of the policy and continue coverage, purchase more coverage, or cancel the policy entirely.

The pros and cons of life insurance for kids

When selecting whether or not to purchase kid life insurance, keep these three common benefits in mind.

1. Guarantees future insurability.

Child life insurance policies usually include or provide a guaranteed purchase option. This means the youngster can purchase additional coverage without having to undergo a life insurance medical exam.

Additional coverage options vary by policy, and the opportunity to purchase more may be limited to particular ages or life events, such as marriage.

Pros: This feature can be valuable if the child develops a chronic health condition, such as diabetes, or pursues a risky vocation, such as becoming a firefighter. People with health issues or hazardous employment generally pay significantly more than the average cost of life insurance.

Cons: You can’t foresee if your child will ever require life insurance. Healthy applicants in their twenties are more likely to achieve affordable rates, so if you believe your child will not require life insurance due to a pre-existing ailment, a child life policy may be unnecessary. Coverage amounts are low and unlikely to fulfill future life insurance needs. 

Coverage is often granted at a normal (i.e., non-preferred) rate class, making it more expensive than coverage available if your child is in good health at age 18.

2. Acts as a savings vehicle for your child

You can withdraw funds from your cash value account or borrow against it. When the child reaches adulthood, they can surrender the coverage and get the full amount. If you borrow a big sum from the policy, your child may wind up having to pay income tax on a phantom gain. 

Pros: The funds can help with expenses such as school fees or a down payment on your child’s first house. It also grows tax-deferred, which means you don’t have to pay taxes on the gains until you remove the funds.

Cons: Life insurance cash value accounts require you to pay premiums and can take longer to increase. poor premiums imply that cash value will be poor. If saving for your child is your primary goal, you may want to look into other sorts of investing first.

3. Covers costs if the worst were to happen

Losing a child is tremendously painful, and you may face unforeseen expenses. Child life insurance policies provide a lump sum payment in the case of death as long as the payments are paid.

Pros: The reimbursement can be used to cover expenses such as funeral bills or grief counseling. It can also help cover the costs of running a business if you are the owner and require time off.

Cons: According to Centers for Disease Control and Prevention data, children die infrequently in the United States. As a result, the danger of being without coverage may not be worth the cost of the policy. Consider opening a rainy-day savings account with three to six months’ salary. 

Before you buy

Before purchasing a policy for your children, you should consider your own budget and life insurance needs. In general, your life insurance is more vital than your child’s because it can help cover your family’s living expenses if you pass away.

Taking out an insurance on your child may make sense in the following situations:

• Your child is a well-paid actor, model, or social media influencer.
• Your child is a teen who works part-time to help with home expenditures.
• Your child cares after younger siblings and provides the assistance you would need to outsource otherwise.

Instead of getting separate coverage for your children, try adding a kid term rider to your existing policy. When the period of the child rider ends, you may be able to convert them to permanent coverage. Not all insurers provide these life insurance riders, and the coverage amounts may be limited. 

Alternatively, if you have group life insurance via your employer, you may be able to purchase additional life insurance for a kid or spouse. However, group life policies are often tied to your employer, so if you leave, you may lose your coverage.