Is Life Insurance for Children Ever a Good Idea? (Probably Not)

You’ve probably seen those Gerber Life Grow-Up Plan commercials.

For a low monthly payment, you can purchase a permanent life insurance policy for your child or grandchild. It builds cash value, and can provide them with life insurance when they become an adult.

But does buying life insurance for kids ever make sense?

After all, the main purpose of life insurance is to financially protect dependents — babies and toddlers don’t have those.

And even though premiums are low, you have to keep paying them indefinitely or risk losing coverage — along with all the money you’ve already paid into the policy.

We break down life insurance for children, including the average cost, drawbacks and potential benefits so you can decide for yourself.

What Is Life Insurance for Children?

Often purchased by parents, guardians or grandparents, child life insurance provides coverage for minors. These policies are usually permanent life insurance policies that provide a fixed payout to the beneficiary if the insured child passes away while covered.

Some people also purchase these policies as a long-term savings vehicle, since they usually accumulate a cash value over time.

Life insurance coverage amounts are usually modest, often below $50,000, and the premiums remain fixed, meaning they don’t increase over time.

The death benefit paid out by child life insurance can be used to cover funeral expenses or any other costs.

When the child turns 18 or 21, most insurance companies will transfer ownership of the permanent life insurance policy into the child’s name. Life insurance coverage can remain in place so long as the adult child continues making premium payments.

How Does Life Insurance for Kids Work?

Children’s life insurance policies are usually whole life insurance policies, a type of permanent life insurance. This means the policy remains in effect for the rest of the child’s life so long as premiums are paid.

A whole life insurance policy combines a death benefit with a cash value component that grows over time. Part of the premium payments contributes to the cash value, which accrues interest and can be accessed later in life.

You can generally purchase a whole life insurance policy for a child when he or she is just 14 or 15 days old. Insurers cap the maximum age you can purchase a policy for a minor; it usually ranges between age 14 and 17.

How Is It Different From Adult Life Insurance?

Adult life insurance policies are typically owned and paid for by the policyholder. However, children’s life insurance policies are owned and paid for by parents or guardians. Parents are usually the beneficiaries as well.

Another difference is that children’s life insurance policies usually don’t require medical underwriting to qualify for coverage.

Finally, the death benefit tends to be smaller for child life insurance policies.

How Much Does Children’s Life Insurance Cost?

Generally, you can expect to pay roughly $10 to $30 per month for whole life coverage for a child.

The exact amount you’ll pay depends on several factors, including the insurer, the coverage amount and the age of the child.

You’ll pay more for a larger death benefit, for example, while premiums are usually lower for babies than teenagers.

The Gerber Life Grow-Up Plan boasts that premiums start as low as $3.70 a month for a child less than 1 year old. However, it only provides up to $5,000 in coverage. A $25,000 policy costs just under $17 while a $50,000 death benefit costs $33.85 per month.

A quote from Mutual of Omaha priced a $20,000 policy for a 1-year-old at $8.22 a month. The price increased to $19 a month for $50,000 of coverage. The same amount of coverage for a 10-year-old costs $26.75.

Just a reminder: An 18-year-old in good health can likely find a 30-year term life policy for less than $30 a month with a much higher death benefit.

How Do You Apply for Child Life Insurance?

Parents, grandparents or legal guardians can purchase child life insurance policies. Some policies may also allow other family members, such as aunts or uncles, to buy life insurance coverage for the child.

Buying life insurance for a child is a straightforward process. Since there’s usually no medical exam, it’s typically faster and easier to buy life insurance for a child than it is for an adult.

Here are the general steps to obtain life insurance for a child.

1. Research insurance companies: Start by researching reputable life insurance companies that offer policies for children (not all companies offer it.) Some of the biggest names include Gerber Life, Mutual of Omaha and Protective Life.
2. Compare policy options: Review the different policies available from each provider. Consider the coverage amount, premiums, cash value accumulation and any additional fees.
3. Get some quotes: Request quotes from the insurance companies you are interested in. You’ll need to provide basic information about the child, including their age and gender, to get accurate pricing information.
4. Carefully review policy terms: Make sure to fully read and understand the terms and conditions of each policy, including any exclusions or limitations. Understand how much it will cost you to keep the policy in force along with any penalties for canceling the policy.
5. Apply for coverage: Once you’ve chosen a policy, complete the application process. Coverage is usually issued within a few days after the application is submitted.

Life Insurance for Children: Pros and Cons

Before you buy life insurance for your child or grandchild, it’s important to understand the pros and cons.

Pros

• Stable, low premiums: Locking in low premiums for a child at a young age is a big selling point for buying this type of life policy.
• Guaranteed insurability: Life insurance policies for children often come with a guaranteed insurability feature, which allows the child to purchase additional coverage without undergoing medical underwriting in the future. If you believe your child will develop a serious health condition early in life, guaranteed insurability could help them maintain affordable coverage.
• Cash value accumulation: Most children’s life insurance policies accumulate cash value over time. This cash value can be accessed later in life and used for various purposes, such as funding education or purchasing a home.

Cons

• Limited death benefit: Unlike life insurance for adults, the financial protection of a child life insurance policy is minimal. The average death benefit — or the money a family receives if the insured child dies — is usually less than $50,000. Compare that to most adult life insurance policies, which often start at $100,000 and up.
• Better investment options: Other investment options, such as a 529 college savings plan, offer more flexibility and have the potential to generate higher returns than whole life insurance policies for children.
• Long-term cost: While locking in low premiums may seem appealing, the long-term cost likely isn’t worth it. The cash value growth rate is often modest, and the fees associated with the policy can eat into potential gains.

Alternatives to Life Insurance for Children

Life insurance for children doesn’t make sense for most people. In many cases, the premiums paid into the policy will far exceed any potential benefits received.

If you want to protect your child’s future, it’s worth exploring other investment options, such as college savings accounts, high-yield savings accounts or adding your child to your own life insurance policy.

Life Insurance Rider for a Child

If your primary concern is covering funeral expenses for a child, you can consider adding a rider to your existing life insurance policy instead of purchasing a separate policy for the child. This option is usually more cost-effective.

These riders are extensions of either parent’s life insurance policy and provide a small death benefit if your child passes away.

Child riders are often more affordable, and they can usually be converted into a separate policy for your child when they reach adulthood.

When it comes to children’s term life insurance riders, there is usually little to no underwriting involved. This means your child doesn’t have to undergo a medical examination to get covered.

However, insurers may ask a few health-related questions. Children with certain pre-existing conditions may not qualify for coverage.

Typically, children are covered under a life insurance rider until they reach a certain age (usually 22 or 25) or get married, whichever comes first.

529 College Savings Plans

A 529 plan is specifically designed to save for future higher education costs, including college tuition, fees and books.

Most 529 plans offer a range of investment options, from stock and mutual funds to pre-built portfolios. The growth of the account value depends on the performance of the chosen investments.

Contributions to 529 plans grow tax-free. Withdrawals for qualified educational expenses are also tax-free. Some states also offer tax deductions or credits for contributions to their 529 plans.

You can find information about your state’s 529 plan by checking this College Savings Plan Network tool created by the National Association of State Treasuries.

Custodial Accounts

Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA) accounts allow parents and grandparents to hold investments on behalf of a child until they reach the age of majority (usually 18 or 21, depending on the state).

Funds can be used for any purpose that benefits the child. It’s not limited to education expenses only.

Investment options for custodial accounts can include stocks, bonds, mutual funds or even real estate, depending on the financial institution holding the account.

Custodial accounts can be opened at banks, credit unions, brokerage firms and online investment platforms.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer at The SS. She focuses on retirement, investing, life insurance and taxes.