Life Insurance for Children: Is it Worth It?

Thang Truong
Thang Truong
Updated on:

Parents have many financial decisions to make as soon as they have a baby. How to plan for the child’s future? How will we afford college? Life insurance companies like to market to new parents because new parents are more likely to make decisions based on emotions rather than financial savvy. Is life insurance for children worth it? Should you buy a policy, and if so, what kind of policy? 

How Children’s Life Insurance Policies Work?

Most insurance policies for children are whole life policies.  These policies build cash value over time. Life insurance companies market them as “a great way to save for college” and to “guarantee future insurability.” Often, these policies are known as “jumping juvenile” life insurance policies, because the amount of coverage automatically increases when the child turns 21. 

Parents and grandparents can purchase a life insurance policy up until the child is 15. They are sold in increments of $1,000 and the most insurance you can purchase for a child is usually $50,000. That would become $100,000 when the child reaches 21 and there’s no increase in premiums. 

Pros and Cons of Life Insurance for Children

Pros:

  • Finance a college education
  • Guarantee future insurability
  • Funeral expenses would be covered
  • Premiums are very low

Finance a college education: Because these are whole life policies, they build cash value over time. Life insurance companies point out that this a great way to save for college. In the event your child doesn’t go to college, you can apply the cash value to trade school, a down payment on a house, travel, or whatever else the child wants. 

However, just because the policy is technically worth $100,000 (as an example) doesn’t mean you have $100,000 worth of cash to spend. Cash value builds slowly, and college is quite expensive. This doesn’t take inflation into account, and college costs have steadily risen at more than three times the rate of inflation for the past twenty years. 

Furthermore, some states actually limit the amount of life insurance you can purchase on a child, generally up to $50,000 which leads to a very small cash value amount in 20 years. 

Guarantees future insurability: Another point is that if your child is later diagnosed with some medical problem later in life, he/she will have this insurance already in place. You can purchase more life insurance as an adult without a medical exam. 

This probably doesn’t make sense for most people. The chances your child will develop an uninsurable condition are pretty remote. An exception might be if a genetic condition runs in your family, but most young adults can get life insurance policies at low rates. 

Funeral Expenses:  According to Child Trends, after the first year of life, the chances of your child dying before they reach adulthood is about .5 percent. It’s extremely unlikely and it probably makes more sense to add a child rider to your own life insurance policy. 

Premiums are very low: The Gerber Grow-up plan offers a $50,000 life insurance policy for about $33 a month. So, yes, premiums are pretty low. 

Cons of Children Life Insurance

  • Children don’t have any income
  • There are better investments 
  • Even the largest child life insurance policy is small for an adult

Children have no income: Life insurance is to provide for your dependents if you die and they can no longer count on your income. Unless your child is some kind of child star and is supporting your family, they don’t need life insurance. 

There are better investments: The average return on a whole life insurance policy is very low.  If you invested the money you put into premiums into another investment vehicle, you could earn more money. 

Even a large policy for a child is small for an adult: Some states limit the amount of life insurance you can purchase for a child. If you buy a $50,000 jumping juvenile policy and it becomes a $100,000 policy when they turn 21, that’s still a small amount of insurance money for an adult. 

Alternatives to Children Life Insurance

There are other options to consider, instead of life insurance for children, that meet the same goals. 

529 plans: 529’s are tax-advantaged savings accounts that encourage parents to save for college expenses. There are two types:

  • Prepaid tuition
  • Education savings plan

Prepaid tuition lets you purchase credits at a participating college or university (usually public, in-state colleges) at today’s rates. 

Education savings plans lets you open an investment account to save for qualified higher education expenses, including room and board, which is not included with prepaid tuition plans. What these plans offer is if, for some reason, your child doesn’t go to college, it will pay a small return on your investment. 

Get more insurance for yourself: Instead of insuring your non-working child, it probably makes more sense to get more insurance for yourself. This way, if you die, your whole family will be taken care of financially. 

Get a child rider: A rider attached to your own term life or whole life or universal life insurance policy will cover funeral and burial expenses in the event your child dies. You can name children, step-children, or adopted children in the rider. Your child will be insured until they are either 22 or married. 

Last Thoughts

Financial advisors usually recommend that parents save for retirement and have reserve savings before even thinking about life insurance for a child. Child life insurance is not recommended as an investment strategy and there are better ways to save for a college education. If you’re really concerned about funeral expenses, you can add a child rider to your own insurance for a low cost. 

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at realtor.com, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

More Stories

6 Best Indexed Universal Life Insurance (IUL) for 2023

Are you looking for a way to set aside some extra money for your senior years, and maybe a little extra for loved ones to inherit? Most people opt for indexed universal life insurance because it offers the greatest cash value growth tied to the performance of S&P 500 index with the least risk thanks […]

Best Self-Directed Roth IRA Companies for 2023

A self-directed Roth IRA is much like a regular Roth IRA, but offers more flexibility as far as what you can invest in. Whereas a regular Roth will only let you invest in stocks, bonds, mutual funds, ETFs, and real-estate investment trusts, a self-directed Roth lets you invest in a greater variety of investment options.  […]

The 5 Best Hybrid Long-Term Care Insurance Companies for 2023

If you’ve decided to plan for every eventuality, you’d be smart to include a plan to cover long-term care. Someone turning 65 this year has an almost 70% chance of needing some type of long-term care, and about 13% of those will need it for five years or more. Long-term care is expensive and can […]

The 3 Best Traditional Long-Term Care Insurance Companies for 2023

Long term care is something that no one likes to think about, but unfortunately, many people will eventually need. Health care costs are skyrocketing, and a lengthy stay at a long-term care facility can easily bankrupt most people’s nest eggs. Long-term care insurance is one way to protect both yourself and your retirement savings. Out […]

The Best Long-Term Care Insurance Companies in California for 2023

California residents who are keen to protect themselves and their families against the worst events in life may be considering long-term care insurance. However, you might not know much about LTC insurance or how it is handled in California. Let’s take a look: What is Long-Term Care Insurance? Long-term care insurance helps pay for long-term […]

The Best Long-Term Care Insurance Companies in Arizona for 2023

Arizona is a great place to retire. It’s warm, there’s no snow to shovel, and Arizona improves the quality of life for anyone with allergies or asthma. When you pack your bags and retire to Arizona, you’re probably not thinking about long-term care. But the sad reality is that 47% of men and 58% of […]

The Best Long-Term Care Insurance Companies in Florida for 2023

There’s a lot of good reasons to retire in Florida. The weather is warm, the beaches are beautiful, and there are lots of other retirees to socialize with. Also, Florida has no state income taxes, no inheritance taxes, and no estate taxes. When you pack up your things and move to Florida, you’re probably not […]

Private Placement Life Insurance: Everything You Need to Know

If you haven’t heard of private placement life insurance, you probably don’t qualify to buy it. Private placement life insurance is typically for investors with millions in liquid cash that they need to invest for tax reasons.  What is Private Placement Life Insurance? Who Qualifies for Private Placement Life Insurance? Benefits of Private Placement Life […]

Nationwide IUL – A Strong Product With Great Features and Excellent Ratings

The Nationwide IUL product can help you either supplement your retirement income or ensure your beneficiaries future by leaving them a nice tax-free death benefit. Obviously, you have many options when it comes to IUL policies, so you want to know how does Nationwide’s policy stack up against the competition? Let’s take a look. Pros […]

Transamerica IUL – A Solid Product but High Consumer Complaint Score & Law Suits

Consumers looking to supplement their retirement income often settle on an indexed life insurance policy. These policies build cash value based on market performance and allow your heirs to enjoy a tax-free death benefit. Let’s take a look at Transamerica’s indexed universal life insurance policy and see what makes it stand apart from other such […]