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If you’re a parent, owning a life insurance policy on yourself is essential to ensure your children could be properly taken care of even if you died. Life insurance replaces lost income. This makes sense.

So, why would you need life insurance on your children?

While your children don’t contribute to your household income, there are other reasons why you may want to consider buying life insurance on your children.

The Cost of a Funeral and Time to Grieve

Losing one’s child is something you wouldn’t wish on anyone. It’s devastating. When you first think of the situation though, your mind goes to emotional loss and not financial.

But consider the financial effects as well:

  • Final expenses – Funerals can easily top $10,000 once everything is said and done. Can you quickly come up with the funds for this if the unthinkable were to happen?
  • Time off work – If one’s child dies, it’s clear that they need to take some time off work. No one knows how long the grieving period may take. Would you have the ability to get back to work on your own terms, or would you need to go back for financial reasons?
  • Counseling – I don’t think there’s a comparable grief to that of a parent who loses a child. Many times the parents will need counseling. Does your health insurance cover this? If not, would you be prepared to pay out-of-pocket?
  • Memory – When a child dies, sometimes parents and loved ones want to create a memorial or charity to honor the child’s memory.

Life insurance ensures that parents would have the money to pay for a beautiful funeral, take the needed time off of work, go to counseling if they wish, and create a lasting memory in their child’s honor.

Future Insurability

The second reason to buy life insurance on your child is to lock in their future insurability. When one applies for life insurance as an adult, many things come into play as the application goes through life insurance underwriting:

  • Age – The older you are, the more expensive your life insurance premiums will be.
  • Medical conditions – If you have a medical condition, diabetes for example, chances are your premiums are going to be higher to balance out the risk. Certain health conditions may even deem you to be uninsurable.
  • Drug, alcohol, or tobacco use – If you have had a history of excessive alcohol use, your rates will be higher. If you use tobacco, this also plays into higher premiums. Marijuana users can find life insurance but premiums may be higher. Hard drug users will be uninsurable.
  • Occupation and hobbies – Sometimes even your job or hobbies can affect your life insurance rates. For example, a professional scuba diver will have higher premiums than a school teacher.
  • Family history – Some medical conditions are hereditary. Life insurance companies take your family history into consideration when reviewing your application.

If you purchase a permanent life insurance policy on your child before all these factors even come into play, they will never have to worry about having increased rates or having their application denied based on one of the factors stated above.

Purchasing a child rider can accomplish this too because of the ability to convert it into a permanent policy. We’ll get into child riders a bit later.

Note: Term life insurance is another type of life insurance, but it’s not available on minor children.

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Cash Value Accumulation

The third reason you may want to consider buying life insurance on your child is the fact that a permanent policy can be an attractive means of accumulation. The cash value inside the policy grows tax-deferred and death claims will be paid out tax-free in most cases.

Though life insurance is not an investment product, life insurance companies invest the premiums you pay and, in the same way other invested monies go, the longer it sits the more it generates. Buying a permanent policy on your child while they’re young will allow the cash value to accumulate into a substantial amount.

When your child is of mature age, you can transfer ownership as well. At this time they may be planning to have a family of their own and can name their spouse the beneficiary of this well-aged policy. Certain policies also allow your child to purchase additional life insurance on top of what you bought, no matter their health status.

Cash Value Life Insurance Is Excluded from Financial Aid Formula

When your child applies for college financial aid, items like checking and savings accounts, stocks, bonds, 529 Savings plans, and a few other assets are included when calculating how much financial aid he or she can qualify for.

These are called assessable assets. The more assessable assets you have, the more money you are expected to contribute to college costs.

Cash value life insurance, however, is a non-assessable asset. This means that its value is not included when determining financial aid. The are four main types of non-assessable assets:

  • Retirement accounts (e.g. IRAs, 401(k)s)
  • Home equity in a primary residence
  • Annuities
  • Cash value life insurance

For example, if you and your spouse have a Roth IRA worth $50,000, home equity of $75,000, cash value life insurance of $100,000, and a mutual fund worth $25,000, under the federal financial aid formula, you are considered to have only $25,000 worth of assets (i.e., the mutual fund).

Purchasing a Life Insurance Child Rider

When you apply for life insurance on yourself, you have the option to add on a child rider when you purchase. The primary policy provides a death benefit if you were to die while the rider provides a small death benefit if one of your children were to die.

A child rider is very inexpensive and we recommend that all parents with minor children add it to their policy.

What’s the cost of a child rider?

The cost to add a child rider to your policy varies between the different life insurance companies, but it’s a nominal fee. You typically pay a cost per unit, with a “unit” being an amount per thousand.

Example:

You purchase a term policy from Company A and want to add on a $10,000 child rider. Company A’s child riders cost $5 per unit ($1,000), so you would pay an additional $50 per year.

Something important to note is that the purchase of a child rider covers all your children. No matter if you have just one child or seven.

You do not need to purchase a child rider for each child. If you add a $10,000 child rider to your policy, all of your minor children are insured for $10,000.

How long does the child rider coverage last?

A child rider will cover all children under age 18 and any future children you may have. How long the rider provides coverage depends on the insurance company, but most state that coverage lasts until the child is 25 years old. A few companies state age 19 or 23.

Another important note is the fact that you are guaranteed the option to convert the child rider into a permanent policy when the child reaches age of majority. There may be limits as to how much coverage you can convert, however.

As an example, some life insurance companies may only allow you to convert up to 5x the original face amount of the rider. If we stay with the previously mentioned example, this means you would be able to convert the $10,000 child rider into a $50,000 permanent policy.

Does buying life insurance on my child make sense?

Because of how inexpensive they are, we always recommend that you add a child rider onto your own personal life insurance policy. However, buying an individual life insurance policy on your child may not be necessary.

Buying enough life insurance on yourself takes priority over buying life insurance on your children. Make sure you can comfortably afford your own coverage prior to buying permanent life insurance on a child.

Buying life insurance on children doesn’t make sense for all families. You may be better off putting that money elsewhere—retirement savings or paying off high-interest debt, for example.

Talk with a life insurance broker if you’re looking to buy a permanent life insurance policy on your child or grandchild. You can review the pros and cons to determine if it’s best for your family.

If you don’t yet have life insurance, get covered. Get term life insurance quotes instantly and anonymously.

Watch the Buying Life Insurance on Your Children Video

About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius, CLU

Senior Editor and Licensed Life Insurance Expert

Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.