Life Insurance for Children
A guide to life insurance for children, the different options, and how to buy it.
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What is life insurance for children?
We understand the uneasy feeling behind the words “life insurance for children”. Absolutely no one wants to think about a child dying and it’s something you don’t wish on anyone. However, life insurance coverage on a child goes beyond a death benefit.
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. This makes sense. But life insurance for children? We’ll explain the reasons why and the benefits behind life insurance coverage for children.
There are two main types of life insurance coverage on a child: children’s whole life insurance and a life insurance child rider.
Children’s Whole Life Insurance
Children’s whole life insurance, also called juvenile life insurance, is a permanent life insurance policy you can buy on your child. This policy can last the child’s entire lifetime and accumulate cash value. Once the money is there, the value won’t go down unless it’s taken out through policy loans or withdrawals.
These whole life insurance policies can be transferred to the child when they are adults to take over ownership. If you decide to transfer ownership to the child, then they have access to the cash value and can change the beneficiary to their spouse or whomever they wish. Many children’s whole life insurance policies also have future purchase options which would allow them to buy additional coverage under the existing policy without providing evidence of insurability.
What is evidence of insurability?
Evidence of insurability is documented proof to the insurance company that a proposed insured is in relatively good health. This proof can be in the form of a medical questionnaire, health records, a medical exam, or all of the above.
Many parents and grandparents purchase these policies as a way to help a child pay for a wedding, college, or provide a down payment on a house. For higher income families, this can be a tax strategy for the policyowner as a way to reduce their taxable estate while also benefiting their child/grandchild.
Life Insurance Child Rider
A life insurance child rider is an add-on a parent can purchase when they buy a life insurance policy. This rider insures the lives of their children under age 18.
A child rider is very inexpensive to add on. It typically costs $50 annually and provides $10,000 of life insurance coverage on all minor children.
When the child reaches the age of majority (18 or 21 depending on the state) there is an option to convert the rider into a permanent life insurance policy. A parent can continue to own the new policy or transfer ownership to the child. This option is especially beneficial if your child develops a severe health condition because the rider can be converted without showing evidence of insurability.
A child rider is different from a children’s whole life insurance policy in a few key ways. A child rider is temporary coverage while a whole life policy is permanent. A child rider doesn’t accumulate cash value like a whole life policy does. But a child rider is far less expensive than a whole life policy.
Why buy life insurance on children?
Life insurance is mainly for financial protection and income replacement. But children don’t contribute financially to your household, so why the need for life insurance coverage?
Parents buy life insurance on their children for three reasons:
- Guarantee their child’s future insurability
- Start accumulating cash value early on
- Help with finances should they die unexpectedly
Guaranteeing 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, you will find premiums to be raised. If you use tobacco, this also plays into higher premiums. Marijuana users can find life insurance but premiums may be raised, hard drug users will be uninsurable.
- Occupation and hobbies – Sometimes even your job or extracurricular hobbies can affect your life insurance rates. A professional scuba diver will typically have higher premiums than a schoolteacher.
- Family history – As life goes on, medical conditions can develop not only for you but for your immediate family members as well. 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 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. The rider’s conversion period is often when your child is between the ages of 18 and 25. With a child rider, you can convert the rider into a standalone permanent life insurance policy and the child does not need to provide any evidence of insurability.
Converting a child rider is typically only done if the child is otherwise uninsurable. The coverage amount available from a child rider conversion is limited and the premiums for the new permanent policy will be quite expensive compared to a new term life insurance policy. So, if your child grows to be a healthy adult, he or she may wish to instead purchase their own term life insurance policy instead of converting the rider into a permanent life insurance policy.
Accumulate Cash Value
Permanent life insurance policies often accumulate cash value. A children’s whole life insurance policy is no different.
Whole life insurance cash value accumulates with compounding interest. So, buying a permanent policy on your child while they’re young will allow the cash value to accumulate into a substantial amount over time.
As owner, you have access to this cash value. These funds can be accessed through policy loans and withdrawal or surrenders.
Often, parents choose to transfer ownership of these policies to their child once the child is an adult. Your child may have a family of their own and can name their spouse and children the beneficiaries 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.
Note: Child riders do not accumulate cash value.
Helping with Financial Loss
This reason behind buying life insurance on your child is the one you hope doesn’t happen. If a child dies unexpectedly, the emotional impact is immeasurable. But, there are 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 died it’s a clear assumption that they would need 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.
Both children’s whole life insurance and a child rider can provide money so grieving parents have one less thing to worry about.
Who can buy life insurance on children?
Parents or legal guardians can buy life insurance on their minor children. For most insurance companies, eligible dependent children include natural children, adopted children, stepchildren (if they live with you in a regular parent-child relationship), and foster children (if they live with you in a regular parent-child relationship).
Grandparents can also buy life insurance on their grandchildren. If the grandparent is the child’s primary caretaker, insurance companies typically do not require the child’s parents’ consent. If the grandparent is not the primary caretaker, some carriers do require the child’s parents’ to sign off on the application.
Other than parents and grandparents, no other relatives or friends meet qualifications to buy life insurance on a minor child(ren).
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Buying Children’s Whole Life Insurance
You can’t buy term life insurance on minor children, but whole life insurance is an option and you can lock in low rates. Because of these low premiums, many choose to have the policy completely paid off in 10 or 20 years. The policy accumulates cash value and will continue to grow even after it’s paid up.
There is one main requirement to buy life insurance on your child: You, the owner of the children’s whole life insurance policy, need to have your own life insurance in an amount equal or greater to the face amount you want to buy on the child. For example, if you want to apply for a $100,000 juvenile whole life insurance policy on your son, you need to already have a life insurance policy insuring you for at least $100,000.
Many life insurance companies restrict the face amounts available for their children’s whole life insurance policies. Why? Simply enough, there is no reason to insure a minor child for large amounts of money. They don’t contribute financially to a family so there isn’t a significant loss of income if they die unexpectedly.
When you apply for a children’s whole life insurance policy, a medical questionnaire about your child(ren) will likely need to be completed, but typically a medical exam is not required nor are medical records.
Should I buy life insurance on my child?
If you’re looking for a financial product to help your child save for their future, other options may be more cost-efficient. 529 plans are great for tax-free education savings. Savings accounts and Certificates of Deposit are both good choices to start a nest egg for them. Roth IRAs are great to jumpstart their retirement savings.
If you’re looking to reduce your taxable income, buying life insurance on your child or grandchild can be beneficial to both you and the child’s future. Work with a financial advisor to make sure everything is set up properly. Gift taxes need to be considered, as do incidents of ownership if you plan on transferring ownership to the child before your own death.
Another reason to consider buying children’s whole life is if your family has a history of serious hereditary medical conditions. Buying life insurance on your child or grandchild now can protect them from potentially being uninsurable when they’re adults.
In most family situations, simply adding a life insurance child rider onto your individual life insurance policy—versus buying children’s whole life insurance—is the best route.
Cost of a Children’s Whole Life Insurance Policy
Children’s whole life insurance is more expensive than a child rider. But children’s whole life is lifelong coverage and accumulates cash value, which a child rider does not.
Children’s whole life insurance premiums vary by the age of the child, the gender, and how much coverage you apply for.
Children's Whole Life Insurance Monthly Quotes
|Age 1||Age 5||Age 10||Age 15|
To buy a whole life insurance policy on your minor child, contact Quotacy directly.
Buying a Life Insurance Child Rider
A life insurance child rider is an “add on” you can inexpensively buy when you buy your own personal life insurance policy. One rider covers all current children under the age 18 and any future children you may have or adopt.
Jane Smith, 45, has five children ages 6, 8, 11, 15, and 20. She purchases a 20-year $500,000 term life insurance policy for an annual price of $480. She decides to add a $10,000 child rider that costs $50 per year. This moves her total annual life insurance premium to $530.
This rider will cover all of her children with $10,000 in coverage each except for the 20-year-old since he is not a minor.
Unlike children’s whole life insurance, which is a type of permanent life insurance, a child rider is temporary coverage. A child rider provides coverage until the child reaches a specified age, typically 23-25 years old, unless it’s converted into a permanent policy.
Cost of a Life Insurance Child Rider
Life insurance child riders can be as low as $50 per year, less than $5 per month, for a rider with $10,000 in coverage. Not all insurance companies offer child riders, but many of them do. Below is a table that shows the companies we work with, whether or not they offer a child rider, and their annual cost. This cost is simply rolled into your life insurance policy’s premium.
|Annual Cost of a $10,000 Life Insurance Child Rider|
|Banner Life (Legal & General)||$55|
|Bestow||Rider not offered|
|Haven Life||Rider not offered|
|John Hancock||Rider not offered|
|Lincoln Financial Group||$50|
|Protective||Price not available|
|United of Omaha||$72|
|William Penn||Rider not offered|
What to Look for When Shopping for a Child Rider
The main things to consider when looking to add a child rider onto your policy include:
1. Child Eligibility
Most insurance companies’ child riders provide rider coverage for your children who are between the ages of 15 days and 18 years. A few companies extend this age up to 20 or 23 years old, but these adult children are required to be unmarried and financially dependent on you, the insured, at time of policy issue.
Some insurance companies will not offer rider coverage to children with special needs or other serious health conditions. If one of your children has a health issue that could result in denial of coverage, when you run quotes on Quotacy, choose Banner Life (Legal & General) when applying. Banner Life does not require that you fill out a medical questionnaire about your children when buying a child rider. If you’ve already applied to a different company, talk with your Quotacy agent. He or she can help move your application over to Banner Life.
2. Coverage Expiration
Most insurance companies’ child riders provide coverage on your children until their 25th birthday. After age 25, the coverage provided by the rider expires unless you or your adult child convert the rider to a permanent policy.
Riders have different conversion expiration periods. Most require that the rider is converted by the child’s 25th birthday, but this age can vary among the companies.
3. Coverage Amount
Most insurance companies’ child riders provide coverage amounts of $10,000 per child, but options can range from $1,000 to $100,000 depending on the company.
4. Conversion Amount
The amount of permanent life insurance you can convert to also varies by company. Certain companies allow you to convert to a policy up to five times the amount of the rider. For example, if you buy a $10,000 child rider, it can be converted into a whole life policy with a face amount of $50,000.
5. Cost of Child Rider
A child rider is inexpensive and, if you choose to purchase one, it simply gets added onto your overall term life insurance cost. Once it expires, that amount drops from your term life insurance cost. The annual amount is usually a nominal $50, but this can vary slightly depending on the insurance company.
How to Buy a Life Insurance Child Rider
When you run term life insurance quotes on Quotacy and you’re shown your quote options, we also provide a summary of each company’s features. These features include whether or not a child rider is available.
When you apply for a term life insurance policy through Quotacy, you’ll be asked on the application form if you have children and if you would like to add a child rider. Your agent will let you know how it will affect your term life insurance cost. Your agent can also answer any questions that you may have about your policy or child riders.
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