While typically not necessary, investing in a life insurance policy for your child has value in certain situations

Key takeaways:

  • Most kids don’t need a life insurance policy
  • It could be beneficial if you can lock in a low rate
  • The policy also acts as an investment
  • Families should speak with an insurance agent to develop a plan

A child life insurance policy might not be something you’ve ever considered. After all, your kids hopefully have decades to live, so the chance of needing coverage is minimal. You also aren’t financially dependent on your children, and investing in life insurance may not seem like a necessary expense. 

The benefits of life insurance for children are debatable, too, because policies don’t have very large payouts. On the other hand, the premiums aren’t likely to increase substantially for your kids into early adulthood, which is a plus. So there are some benefits associated with child life insurance policies that are worth considering, and understanding how these policies benefit your kids and family can help you make the right decision regarding insurance. Here’s what you need to know about buying life insurance for children.

It can last a lifetime

Child life insurance plans are typically permanent, so they last for an individual’s entire life as long as they keep paying the premiums. As a result, your children won’t have to worry about renewing their plans later in life because they’ll already be covered. Their premiums will stay the same, as well, which is excellent news if you can lock in a low rate for your child right now.

It’s worth noting that the low payouts associated with a child’s life insurance plan might make them reconsider their plan when they become adults and have dependents. This step might be necessary if the payout isn’t big enough to support their family after an unforeseen event.

There’s a guaranteed purchase option

Your child’s life insurance policy can ensure their future insurability as long as the plan has a guaranteed purchase option. This means that your child can purchase additional coverage in the future without completing a medical exam. 

Keep in mind that the guaranteed purchase option varies by plan. These options can also erode as the policyholder ages, and life events like marriage can also change available options.

Still, the guaranteed purchase option could be a positive if your child develops a chronic health problem when they get older or opts for a risky career that could increase their premiums. This scenario is also a long-term benefit for your child if they develop a pre-existing condition as an adult. 

It’s an investment

A somewhat under-the-radar benefit of child life insurance is its investment potential. It’s possible to withdraw money from the cash value of the account or to borrow against it, giving you and your child options if you ever need financing. 

Your child can also surrender the policy as an adult and receive the funds in full before signing up for a different life insurance policy that better suits their needs. The child can then use this money for school, a down payment on a home, or anything else that pops up during early adulthood

Of course, this investment will take considerable time to grow, so it might not be worth much beyond the premiums paid when the child becomes an adult. Other investment options will likely provide a better return, so purchasing a life insurance policy strictly as an investment opportunity, while a bonus, may not be the best use of your money.

The policy covers unforeseen expenses

Finally, life insurance for children covers certain expenses if you do lose a child. While you don’t want to think about this extremely painful scenario, having a safety net in place can help ease some of the financial burden as you put your life back together if such an event does occur. 

The payout you receive can cover things like burial costs, counseling expenses, and business interruption costs if you own a company. While the payouts are usually low compared to an adult policy, it’s enough money to help you deal with short-term expenses. Fortunately, child mortality rates in the United States are incredibly low, so this situation is unlikely to play out. 

Other things to consider

Before buying a life insurance policy for your child, it’s worth examining whether the money would be better spent upgrading your personal life insurance plan instead. Your family is likely dependent on your income, so finding a policy that covers your dependents’ living costs and other expenses if you pass away might be a higher priority. 

It’s also worth noting that children aren’t eligible for term life insurance, which usually has lower premiums than whole life insurance. Investing in a child rider, which adds your dependents to your life insurance policy, is another option worth considering because it offers a small payout if you lose a child. It just doesn’t act as an investment vehicle for your child’s future. 

Get the best policy for your family

If you’re looking for an investment vehicle for your child that provides a financial safety net if the unforeseen occurs, a child’s life insurance policy is worth examining. You can withdraw money from your plan whenever you wish, and the policy has the potential to lock your kids into a low rate for the rest of their lives. 

Of course, adult life insurance policies are probably more important because they provide financial coverage for your dependents if you pass away, alleviating much of their burden. The result is a family that’s adequately cared for when you’re no longer around. Speaking with an insurance agent can help clarify which life insurance option is best for you. 

NICRIS delivers personal, commercial, and life insurance to clients in New York state. We offer personalized guidance when you need it the most, helping you navigate the complexities of insurance and providing peace of mind for your family. Contact NICRIS Insurance today for a life insurance quote.