The question of whether to buy life insurance for children sparks strong debate about the value of such policies.
Life insurance for children is often marketed to parents or grandparents as a way to save money for kids and to “protect their insurability,” meaning their chance to buy more life insurance later no matter their health. For these reasons, some life insurance agents say purchasing life insurance on a child can be a smart financial move, but many financial advisors caution against it.
“I struggle with thinking of reasons why it would make sense,” says Joseph Alfonso, a financial advisor in the San Francisco and Portland, Oregon, areas.
Most insurance agents and advisors can agree, though, on one point: Other, more critical financial matters should come first before you even think about buying a life insurance policy on a child. Those include building an adequate emergency savings fund, making sure you and the child’s other parent have enough life insurance and disability insurance, building savings for the child’s college tuition, and getting your own retirement savings on track.
How it works
There are a couple of ways to buy life insurance on a minor child:
- You can buy some coverage on your child’s life if you purchase a term life insurance policy covering yourself or your spouse. You do this by buying a rider — an extra policy feature at added cost — that extends a small amount, such as $20,000, in life insurance to other family members, including children. Term life insurance provides coverage for a certain period, such as 10, 20 or 30 years, and pays a death benefit to the beneficiary if the insured person dies during the term. This is the only way to buy term life insurance on a child; there aren’t standalone term life insurance policies for minors.
- Or you can buy a permanent life insurance policy, such as whole life, covering your child. These are generally for small face amounts, such as $50,000 or less. Permanent life insurance provides coverage for someone’s entire life and includes a savings account that gradually builds value over time. As a result, the premiums are much more expensive than term life.
The Gerber Life Insurance Co., which specializes in selling whole life policies for children, is the best-known name in the industry for juvenile life insurance. The company, an offshoot of the baby food maker, uses the famous face of the Gerber baby to market its policies directly to consumers.
But you can buy a permanent life insurance policy covering a child from just about any of the biggest life insurance companies. A parent or grandparent can make a child the policy owner once the child reaches adulthood.
About 20 percent of parents and grandparents say they have purchased coverage on kids, according to a survey of 2,000 adults by industry groups Life Happens and LIMRA.
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