Introduction
As a parent, you want to ensure that your child’s future is protected, no matter what happens. One way to do this is through child life insurance. While it may not be the first thing that comes to mind, it can be a good way to ensure your child’s financial future. In this guide, we’ll explain what child life insurance is, how it functions, and whether it’s a good idea for your family.
What is Child Life Insurance?
Child life insurance is a type of insurance policy that covers your child. If something happens to your child, the policy will provide a death benefit, meaning a payment or payout is given to the family. In some policies, cash value accumulation is also available.
Most child life insurance policies are purchased by parents or grandparents to protect the child’s future financially. It is different from adult life insurance because it is usually much cheaper and typically has a smaller coverage amount.
Child Life Insurance Policy Types
Term Life Insurance for Children
What It Is: This policy covers a specified period, such as 10, 20, or 30 years. If your child passes away during this time, the policy will pay out a death benefit. If your child survives the term, there’s no payout.
Best For: Parents who seek affordable, short-term coverage until the child becomes an adult or enters their own family life.
Whole Life Insurance for Children
What It Is: Whole life insurance provides lifetime coverage. It also includes a savings component that accumulates cash value over time, which can be borrowed against or used later in life.
Best For: Parents who want coverage for their child throughout their life and want to assist in setting up a savings asset, such as for college or a down payment on a home.
Universal Life Insurance for Children
What It Is: Universal life insurance is another permanent insurance option that offers flexible premiums and death benefit amounts. Like whole life, it builds cash value, but with greater flexibility in how the policy operates.
Best For: Parents who want permanent coverage and flexibility with premium payments and coverage amounts, along with the opportunity for cash value accumulation.
Benefits of Child Life Insurance
Affordable Premiums
Child life insurance is generally very affordable, especially if purchased when the child is young. Since children are typically healthy, premiums are low, making it an economical way to provide lifelong coverage.
Lifelong Coverage
Whole life and universal life insurance offer coverage throughout your child’s life. This ensures that your child will have life insurance, even if they develop health complications later in life.
Cash Value Growth
Whole life and universal life policies accumulate cash value over time. This can serve as a beneficial savings tool. The cash value grows tax-deferred, and your child can borrow against it or use it for future needs, such as college expenses or buying a home.
Financial Protection for the Family
While we all hope nothing bad happens to our children, life insurance provides a financial safety net for the family in the event of an unfortunate situation. The death benefit can cover funeral, medical, and other expenses during a tough period.
Future Insurability
Child life insurance ensures that your child will be able to obtain life insurance when they become an adult, even if they develop health issues. This is particularly beneficial if you have a family history of medical conditions.
Drawbacks of Child Life Insurance
Small Coverage Amounts
The coverage amount for child life insurance is typically smaller than that of adult policies. While it may be sufficient to cover funeral costs and a few other expenses, it may not be enough for income replacement or long-term needs.
No Immediate Advantage for the Child
Since children do not have an income, life insurance doesn’t provide immediate financial benefit for them. The primary benefit is to the family in the event of the child’s death.
Possible Cost Over Time
Although child life insurance is typically affordable at the outset, premiums for whole or universal life policies may increase over time as the child grows.
Limited Purpose
Some families may feel that child life insurance isn’t necessary, as children are not financially dependent. Parents might prefer to save for their child’s future through other means, such as college savings accounts or investments.
Should Child Life Insurance Be the Right Choice for Your Family?
Child life insurance may be a good option if:
- You Want Continued Coverage for Your Child: If you want your child to have life insurance for their entire life, buying a policy early locks in low premiums.
- You Want to Develop Cash Value: Whole life and universal life insurance accumulate cash value over time, which can be useful when your child is older.
- You Need Financial Protection for the Family: If you want financial protection in case something happens to your child, life insurance can help cover unexpected costs such as medical bills or funeral expenses.
However, if your primary focus is saving for your child’s future or meeting financial needs as they grow, other financial products like savings accounts or college funds might be better alternatives.
How Much Child Life Insurance Do You Need?
The amount of coverage you need depends on your goals. If you’re purchasing insurance to cover burial expenses, a policy between $5,000 and $25,000 may suffice. However, if you want to provide long-term financial protection, you may want to consider a larger policy or permanent life insurance plan with cash value benefits.
