Buying Life Insurance for Children: Does It Make Sense?

When people think of life insurance, they typically imagine policies designed for breadwinners, those whose income supports a household. It may seem counterintuitive, then, to consider buying life insurance for a child. Yet, despite some controversy, there are scenarios where purchasing a life insurance policy for a child can offer long-term financial and emotional benefits. If approached thoughtfully, it can be an important piece of a broader financial strategy.

Why Buy Life Insurance for a Child?

​The primary reason people purchase life insurance is to provide financial security in the event of an untimely death. For children, this isn’t typically the driving force behind purchasing a policy. Instead, the focus often shifts to three key areas: guaranteeing insurability, locking in low premiums, and building cash value.

1. Guaranteeing Insurability

​One of the most compelling arguments for insuring a child is to ensure they can maintain life insurance coverage into adulthood, regardless of future health conditions. If a child is diagnosed with a serious illness later in life or develops a chronic condition, obtaining life insurance could become difficult or even impossible. A policy purchased early in life can bypass these risks and lock in lifetime insurability.

2. Locking in Low Premiums

​Premiums for life insurance are significantly lower when purchased at younger ages. A permanent life policy taken out for a healthy child can come with a fixed rate that remains unchanged for life. This means the child could carry the policy into adulthood at a cost that is far less than what they might pay if they wait until later to apply on their own.

3. Building Cash Value

Whole life and other forms of permanent life insurance build cash value over time. These funds can be borrowed against or used by the child later in life for significant expenses, such as college tuition, a home down payment, or even starting a business. While not a substitute for traditional college savings plans, life insurance with cash value can offer additional financial flexibility.

What Type of Life Insurance Is Best for Children?

Most commonly, whole life insurance is the product of choice when insuring children. Whole life insurance is a type of permanent policy that provides coverage for the insured’s entire lifetime as long as premiums are paid. These policies also accumulate cash value, which grows over time at a fixed, tax-deferred rate.

Some insurers offer child rider policies, which can be added to a parent’s existing life insurance policy. These are generally more affordable but offer limited coverage (typically between $10,000 and $30,000) and do not build cash value. While riders are an inexpensive option, they are usually only valid until the child reaches a certain age. At that point, they can often be converted to a permanent policy, though usually at a higher cost.

For those seeking long-term benefits and cash value accumulation, a standalone whole life policy for the child is usually a better option.

How Much Coverage Is Appropriate?

The right amount of coverage depends on your goals. If the main objective is to lock in insurability and provide a modest financial foundation, policies ranging from $25,000 to $50,000 are common. These amounts are typically sufficient to cover final expenses while also allowing room for cash value growth.

For parents looking to build a more substantial financial resource for their child, policies with $100,000 or more in coverage can be considered. The premium will naturally increase with the size of the policy, but it also enhances the long-term financial value of the coverage.

When Should You Buy, and Until What Age Is It Useful?

The earlier the better. Most insurers will issue child life insurance as soon as 14 to 15 days after birth. The younger the child, the lower the premium, and the longer the time for cash value to accumulate.

These policies are permanent, meaning they remain in effect for the life of the insured child as long as premiums are paid. There is no set expiration date. Once the policy is in place, the child can maintain it for decades to come. In many cases, parents or grandparents pay for the policy during the early years and then transfer ownership to the child when they reach adulthood.

Is It the Right Choice for You?

While life insurance for children isn’t essential for every family, it can make sense under the right circumstances, especially for those looking to secure future insurability, start a financial foundation, or explore additional avenues for tax-advantaged savings. It is important to weigh the costs and benefits in the context of your overall financial goals.

Talk to Landau Insurance Brokers Today

Every family’s financial situation and goals are unique. If you're considering life insurance for your child, a conversation with an experienced advisor can provide the guidance you need to make an informed decision. At Landau Insurance Brokers, we help families across California evaluate their options and choose policies that make long-term financial sense.

Contact us today to explore child life insurance options tailored to your needs and give your family an added layer of financial security for generations to come.