A Complete Guide to Life Insurance For Children
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Not many people think to protect their children with life insurance, especially when the major use is for a payout upon death. While tragedy does happen and you should be protected from it, there are a number of other uses that having life insurance for children can provide. Protecting your little ones may be in your best interest.
What is Life Insurance for Children?
Similar to life insurance for adults, life insurance for kids is a type of whole or permanent life insurance policy that provides the beneficiary with a fixed death benefit or payout. This death benefit is given to the beneficiary in the event of the child’s death. As long as the policyholder, either the parent or guardian of the child pays the monthly premium this coverage does not expire. Similar to other whole life insurance policies, the premium amounts are guaranteed to never increase during the life of the policy. It also can build a cash value over time that you can borrow against and use for emergencies.
Most life insurance policies for children can begin when the child is as young as 15 days old and will last until the child reaches age 18 or 21. Depending on which carrier you have, some policies will last up until the child turns 25 years old. Life insurance for children can be converted over to the child once they age out of being insured under their parent or guardian. Most people who have taken out a life insurance policy on their children transfer it over to their adult children once they can pay the monthly premiums.
How Much Does Life Insurance for Kids Cost?
Most life insurance policies for children come at a relatively low monthly premium cost. The face amount for these types of policies ranges from $5,000 worth of coverage to $50,000 worth of coverage. On the low end, the monthly premium costs can be as low as $5 per month for the entire life of the insurance policy. The premiums you pay will not change so you will never experience an increase in how much you pay to protect your children. The younger your child is when you buy the insurance policy the less you will pay.
Even if the amount is low, you may want to give your child an insurance policy that is completely worry-free. Some insurance companies offer payment options that allow you to pay off the entire amount of the insurance policy within a 10 or 20-year period rather than for the life of the child. Naturally, this shorter time to pay means that the premium amounts will be higher. However, this will buy your child complete peace of mind for the future knowing that they are protected for life and have to pay nothing into policy as they age. Rates for children are on average far cheaper than premiums for adults, even if the coverage amount is identical.
Children’s Insurance Rider
Rather than offering a whole life insurance policy for a child alone, some insurance companies will offer a child rider. A child rider is a type of additional coverage an insurance policy that pays out a death benefit to you if the insured child should pass away. Insurance companies offer this rider as a cost-effective way to protect your children and your family without having to buy an additional policy for your child. While life insurance for children cannot be a term policy, child riders often are term life insurance policies. This means that the coverage will expire once your child has hit a certain age or a certain number of years have passed.
Typically either your reach a certain age or your child does before this term rider expires. Once the child term rider does expire, your child can sometimes then convert this into a stand-alone life insurance policy if they can continue to pay the insurance premiums. Should the worst happen and you experience the death of a child, you will be able to get a death benefit that is tax-free and can be used for any purpose so you do not have to worry about final expense costs as you grieve with a good insurance rider.
Pros and Cons of Life Insurance for Children
Pros of Life Insurance for Children
Guaranteed Coverage
Life insurance for children can be converted into their own whole life policy when they come of age to do so. They will be covered for life regardless of any medical issues later in life that may otherwise disqualify them from having a life insurance policy. This is especially helpful since COVID was a mass disabling event and we are unsure of how it impacts children as they get older. Life insurance for adult children also allows them to increase their coverage amount later without submitting to a medical exam.
This guaranteed coverage also applies to other activities that insurance underwriters consider high risk like a dangerous job or hobby. If your child ends up a laborer or taking on hang gliding for fun, they may have been disqualified from having life insurance. With a life insurance policy for kids, however, they are covered regardless.
Final Expenses Covered
In the event of a tragedy, life insurance for children can help alleviate the financial stress of planning a funeral. Losing a child is the hardest loss for any caregiver to endure. You may not think something so terrible could ever happen but preparing for the worst is the best thing you can do for your family.
Builds Cash Value
Like other whole life insurance policies, life insurance for children builds a cash value over time. The great thing about this type of policy is that it builds for a very long time, allowing for a large sum of cash to accumulate. You can withdraw that cash at any time for any reason, just be mindful that it does go against the face amount. However, this can be used should you need to pay for something like braces or gear for school.
Face Amount Doubles
Some insurance policies allow for your child to not only continue their life insurance as an adult but will instantly double the coverage amount. For example, if the face amount of the life insurance policy is $20,000 then it will instantly double to $40,000 once the child takes on the policy for themselves, so long as they continue to pay the premium amount. Their coverage will increase without having to prove insurability later in life.
Cons of Life Insurance for Children
Money Could Go Elsewhere
Life insurance for children is a major investment of money. These funds could be used for other, short-term expenses. If your child’s life insurance premium totals to be $15 a month then that is $180 a year that could be used towards other expenses in your life or put into savings. Over 18 years, that is over $3,000 that could have been used for more immediate expenses in your or your child’s life.
Long-term Commitment
Providing life insurance for children is a long-term commitment of at least 18-25 years. You will have to have the income set aside to be able to pay the monthly premium in order for the protection to last. If your child plans on converting that policy into a whole life insurance policy for themselves then that commitment is extended to the end of their lives or until they can no longer afford to keep up with the premium payments.
Low Cash Value Amount
While you may be accumulating a cash value over the entire life of the insurance policy, you will also notice that the actual amount built up is not very high. With a life insurance policy for kids, you may only make your money back in premiums and not accumulate much more. This could be enough to create a small nest egg for your child but you may find another alternative that better fits your needs.
Low Face Amount
Compared to an adult life insurance policy, life insurance for children typically have low face amount values. The amount ranges from $5,000 in coverage to approximately $50,000. There may be options for a higher face amount out there but you do not really need this coverage that is that high.
Do I Need to Buy Life Insurance for my Children?
Whether or not you get life insurance for your children is entirely dependent on what financial and long-term goals you have. Should a tragedy occur, you may be grateful that you have life insurance so that you can cover the final expense for your child. However, unless your child has a grave illness the chances of your child dying are slim. If you are in a place financially where you could cover such an expense out of pocket then you may not need to invest in life insurance for your child.
Also, using life insurance for children to build savings for college as your child ages may not be financially the best option. There are other, more lucrative ways to plan and save for major life expenses such as college tuition. For these circumstances, you may want to look into a state-run 529 plan. This allows you to invest in funds that will grow into a tax-deferred sum. Using a 529 plan for education-related expenses will allow you to withdraw that money completely tax-free. However, there are some downsides to a 529 plan. Firstly, life insurance for adult children will not count as an asset when your child applies for financial aid while a 529 plan will. Secondly, a life insurance plan offers flexibility in that if your child decides not to go to college, you will not receive a tax penalty for using the cash value of your policy. If your child wants to use the money in their 529 plan for anything else then they face a hefty tax penalty for doing so.
Best Life Insurance for Children
There are a few life insurance agencies that offer either a whole life insurance policy for children or a rider for children. At Final Expense Benefits, we are committed to providing you with information regarding some of the best life insurance agencies so that you can protect the ones you love.
Mutual of Omaha Children’s Whole Life Insurance
Foresters BrightFuture
Foresters Financial offers a whole life insurance policy called BrightFuture Children’s whole life insurance. This whole life policy allows you to cover a child or grandchild and provides a number of benefits including several additional riders and a cash value. The maximum face amount for this policy is $75,000 but does require a simple medical exam to qualify.
Aetna Accendo Child Term Rider
Corebridge Child Term Rider
Corebridge Financial Direct offers a child term rider for folks wishing to protect their children. This rider is available to children as early as 15 days old up until their 19th birthday. Should tragedy occur the child rider pays a set amount of death benefit to the insured’s parent. This can help to ease the financial burden during a time of great loss.
American Amicable Grandchild Riders
American Amicable Insurance provides protection coverage for grandchildren between the ages of 6 months to 15 years. You can buy $5,000 worth of units of coverage for your grandchildren for as little as $1 a month in addition to your already established premium amount. The application is simple with no underwriting requirements.
If you are looking for insurance for yourself or a loved one, the talented and compassionate agents at Final Expense Benefits are here when you need them.
Call today at 1(866) 311-4338 to find the best policy to fit your every need.