Who needs life insurance? Most people usually think about adults with families, older people who want to cover end-of-life expenses, or high earners looking for an income tax-efficient financial strategy. But you may be surprised to learn that many parents (or grandparents) also purchase life insurance for their newborns, young children, and teenaged offspring. For some, buying life insurance for kids is about locking in coverage while they are healthy, or building cash value for future needs. But does it make sense for your family?
Key takeaways
Children’s life insurance is typically purchased by parents or grandparents and can provide lifelong coverage, and potentially, cash value that the child can access as an adult.
Whole life insurance for children locks in low premiums and can help ensure future insurability, which may be especially valuable if the child later develops a medical condition or enters a high-risk profession.
Many families buy life insurance for children to help build long-term savings, cover possible end-of-life expenses, or provide a financial asset that can be used for education, a home purchase, or retirement.
Term life insurance for children is generally more affordable but does not build cash value and only provides coverage for a limited period unless the policy includes a conversion option.
Before purchasing life insurance for children, families should weigh the benefits of guaranteed coverage and savings potential against lower coverage amounts, slow cash value growth, and alternative investment options that may offer higher returns.
Life insurance for children: The basics
Children’s life insurance is coverage that adults — usually parents or grandparents — purchase for minor children. However, the adult who purchases the policy can also be the beneficiary if they wish. Most life insurance companies offering children’s life insurance only offer whole life insurance policies, although some also offer term life policies. These plans can be purchased for children as young as 0-14 days and as old as 17. Generally speaking, applications are easy to complete, and no medical exam may be required.
Children’s life insurance coverage is usually significantly lower than what’s available for adults, with most companies capping coverage at $50,000–$75,000. Policies are designed to allow a seamless transfer of ownership to the child when they reach the age of maturity, and the covered child can’t access any accumulated cash value from the policy until they reach that age, which is determined by state law (typically 18 years old in most states).1
Children’s life insurance is usually cost-effective
Monthly premiums and policy features vary based on the child’s age, health, and the specific plan chosen. Even so, it’s possible to purchase $50,000 of coverage for a baby for an average monthly premium of just $27, or as low as $3 a month for $5,000 coverage.2 Keep in mind that the younger the child, typically the lower the cost.
Why people purchase children’s life insurance policies
You can understand why adults buy life insurance for themselves — it’s usually to help provide future financial protection for their families or dependents. But why would someone purchase life insurance for a child? In reality, buying life insurance for a child only makes sense in certain situations, and for many families, alternatives like a savings account may be more practical. Here are the most common reasons:
Building savings: A permanent life insurance policy (whole life insurance or universal life insurance) accumulates cash value over time.3 Permanent policies direct a portion of premium payments into a cash-value account that grows tax-deferred, a key reason to consider this type of policy. When the child reaches the age of majority (18 years old in most states), they can use the funds for college tuition, vocational training, or any other purpose. Or, if they keep the policy in force into later adulthood, they can continue to accumulate cash value that they can use to help start a family or a business, make a down payment on a home, or eventually, to help supplement retirement income. However, many families find that a savings account or other investment vehicle, such as a 529 plan, makes more sense for building money for a child’s future.
Help ensure future coverage: Purchasing a whole life insurance policy for a child helps ensure that they will have cost-effective coverage as an adult – because as long as you continue to pay the premiums, the policy will last their entire lifetime, and with whole life insurance, the premiums won't increase. For many families, life insurance for children is primarily about guaranteeing insurability regardless of future health or health conditions, which means their ability to get coverage is protected even if their health changes in the future. This can be a valuable benefit for any child, but especially for those born with (or may develop) a medical condition that could prevent them from obtaining coverage as an adult. It can also help if the child goes into a high-risk profession that would make it very difficult or costly to obtain coverage.
An important note: Some children’s term life policies — but not all — will allow the child to convert to a permanent whole life policy in order to continue their coverage into adulthood. So, if you’re considering a term policy, be sure to ask if it is convertible before purchasing coverage.
Covering end-of-life expenses: As difficult as this is to consider, it’s important to note that some parents — including those whose children were born with serious congenital conditions – purchase children’s life insurance to help protect family finances in the event of the child’s passing. The death benefit provided by a life insurance policy can be used to cover end-of-life expenses, medical bills, or other expenses at an especially difficult time.4 Many parents with concerns about their child’s longevity choose children’s term life insurance rather than whole life.
Whole life insurance vs. term life insurance
When choosing life insurance for a child, key factors to prioritize include permanent coverage to lock in low rates, cash-value growth potential, and available riders such as a guaranteed purchase option. And, while coverage for children is commonly offer whole life insurance, some also offer term life. Here are some key facts to consider when deciding which is more appropriate for your needs.
Whole life insurance
This type of policy offers important benefits that can help a child build financial stability into adulthood:
Cash value accumulation: With a whole life policy, a portion of each premium payment can accumulate as cash value, which the insured child can access when they reach the age of majority. The child can use the funds for expenses such as college tuition or — if the policy remains in force beyond age 18 — can leave them untouched so that they can continue to grow tax-efficiently.
Permanent coverage that lasts into adulthood. Whole life insurance provides coverage for the child’s lifetime, not just a set term, enabling lifelong protection. As long as you pay the premiums, a whole life policy will remain in force throughout the child's lifetime, even if they are born with (or develop) a medical condition.
Level premiums: Premiums remain the same throughout the life of the policy. This can help ensure that the child can access cost-effective life insurance protection
Additional features: Many whole life policies for children offer riders, such as the Guaranteed Purchase Option Rider, which allows your child to buy additional coverage at specific adult milestones without a medical exam — even if health conditions develop later in life.
Term life insurance
Unlike whole life insurance, term life policies don’t build cash value. While some term policies do include the option of converting to whole life coverage to continue protection into adulthood, this is not always offered. Key features to consider include:
Temporary coverage: Term life insurance provides coverage for a set period, such as 10, 20, or 30 years. After the term ends, the policy will no longer be in force, and the child (or young adult) has to apply for new coverage
Lower initial cost: Premiums are typically much lower than whole life; but after the term expires the insured has to apply for a new policy at rates that will likely be much higher, because the cost of life insurance increases with age.
So why would someone purchase children's term life insurance? Term life is typically a significantly more cost-effective option and is often purchased for children with serious medical issues and a high risk of untimely death. The death benefit can provide needed funds to cover end-of-life expenses or medical bills. Also, a limited amount of term coverage for children is sometimes added to a parent's term life policy at little or no additional premium.
Life insurance for children: Pros and cons
Advantages | Disadvantages |
|---|---|
Whole life insurance locks in low premiums for life | Coverage amounts are low (usually capped at $50,000-$75,000 or less) |
Whole life insurance guarantees coverage for life- as long as premiums are paid | Paying premiums over many years may be a financial burden |
Whole life insurance can accumulate cash value for the future | Returns are relatively low, and cash value accumulates slowly |
Term life and whole life both provide a death benefit in the event of the child’s untimely passing | Alternative financial vehicles may offer higher returns over time |
Be sure to consider all the potential benefits and drawbacks before making any purchase decisions. You may want to seek professional advice, as there can be important tax and legal implications associated with different policy types and premium payments. A financial advisor or insurance agent can help you to make the right choice.5
Guardian can help
If you’re considering life insurance for a child or grandchild, a financial advisor can help you to better understand your options and make the right decision for you. If you don’t have someone to speak to, ask your friends for a recommendation — or click below to find a Guardian financial advisor in your area. They will provide answers, insurance quotes, and information about Guardian child coverage riders that may let you cover a child under your own life insurance policy.6
Frequently asked questions about life insurance for children
Yes, many insurance companies offer life insurance coverage for children. Typically, these are whole life policies, although some companies may also offer term life. It's important to note that the person who purchases the policy — usually a parent or grandparent — will be the policyholder and can also be the beneficiary. In addition, the child can't access accumulated cash value from a policy until they reach the age of majority, which is 18 in most states.
While there is no single correct answer to this question, whole life insurance — while more expensive — offers valuable advantages over term life. Importantly, whole life accumulates cash value that the child can access after they reach the age of majority (18 years old in most states). It also locks in a low premium and guarantees coverage for life, or as long as you continue paying the premiums. That said, if the main concern is covering end-of-life or other expenses in the event of a child's death, term life can be a more cost-effective option that doesn't accumulate cash value and doesn't guarantee coverage or stable premiums after the end of the term.
Depending on the insurance company, the minimum age for a child’s life insurance policy ranges from 0-14 days. No medical exam is required, and, in general, the younger the child, the lower the premiums.