Five questions to ask if you’re considering life insurance for your child

Life insurance primarily exists to help your dependents cover any financial loss that will occur upon your death — it’s a contract between the policyholder (the person who owns the policy) and the insurance company. The contract guarantees the company will pay a sum of money to the beneficiaries (the people who you’d like to receive the money) in the event of your death. 

If you’re considering buying a life insurance policy for your child, it’s best to speak with a financial advisor or insurance agent first about your specific situation. But here are five basic questions to help you better understand your child’s coverage options.

1. What is child life insurance?

Child life insurance is a type of  life insurance policy that covers the life of a child, but most options on the market come in the form of whole life insurance. This type of coverage is permanent, expensive, and its main goal is not to protect against financial loss — whole life policies are usually a good fit for people who want to diversify their investment portfolio or cover dependents who require lifelong care. 

Child life policies remain active for the child’s entire life as long as you continue to pay the premiums. These policies come with a cash value, which can act as a savings vehicle. The cash value accrues interest as time goes on, but at a lower rate than other types of investment accounts.

Children usually don’t need life insurance because they don’t earn income. That’s the main reason term life insurance policies — one of the most popular and affordable types of life insurance — aren’t available to children. Term life policies exist to replace income and buffer against financial loss. 

Your child could, however, apply for their own term life insurance policy once they turn 18.

2. What are my financial goals?

Before buying a policy, it can be helpful to think through your motive for coverage. When I worked with clients as a licensed life insurance agent, we’d start by going through some basic considerations before talking about types of policies:

•  Are you married?
•  Do you have any dependents? 
• How much do you contribute to your household? Are you a stay-at-home mom?
• Do you have any liabilities, like a mortgage or debt your loved ones would be responsible for?
• What’s your budget?

These factors can help you narrow down which kinds of life insurance policies are going to be the best option for your needs.

When considering child life insurance in particular, you can ask yourself the following questions:

• Are you worried about paying for a funeral in a worst-case scenario? 
• Does your child have a health condition that might prohibit them from qualifying for their own life insurance policy as an adult?

If the latter is true, a child life insurance policy may be worth it, since sometimes insurance companies have different underwriting requirements — the guidelines they use to assess risk and determine premiums — for children than they do for adults.

If, on the other hand, you’ve heard that child life insurance policies can help save for college and want to give your child a financial head start, there are often better alternatives. 

If college is your primary concern, options like a 529 plan might be a better choice. 529 plans are tax-advantaged accounts sponsored by the government. They’re used for education expenses, and qualified withdrawals are tax free. 

Plus, in 2023, a bill was passed that mandates any extra unused funds can be rolled over into a Roth IRA. This way, if you spend years contributing to a 529 plan and your child decides not to go to college or doesn’t use all of the funds, they can roll over money from the plan into their own Roth IRA.

3. How much does child life insurance cost?

Child life insurance policies can provide financial peace of mind, but at a steeper cost than other alternatives — whole life insurance is significantly more expensive than term life. 

Usually, whole life insurance policies for children have a minimum coverage amount of about $50,000.

• If you were buying a $50,000 life insurance policy for a one-year-old child, you might pay about $45 per month, depending on the insurance company. 
• For a five-year-old child, you could pay about $50 per month for the same coverage. Prices at the time of application will increase marginally every year your child ages. 
• Coverage for boys will also cost slightly more than coverage for girls, just like coverage for adult men is more expensive than coverage for adult women, because women have longer life expectancies and tend to be more risk-averse.
• Keep in mind you’d need to keep paying these premiums indefinitely, or else the policy could lapse and you’d lose out on the benefits.

For less than what you would pay for a child life insurance policy, you could get a term life insurance that would cover both yourself and your child — using an option available on the market called a “child rider.” It would all depend on your age, gender, health profile and personal situation,

4. What is a child rider?

A child rider provides life insurance for your children — but it’s different from a standalone child whole life insurance policy. 

A child rider is an optional add-on you can purchase along with a life insurance policy for an adult — for you or your spouse, for example. Child riders can provide anywhere from $500 to around $20,000 of coverage — the amount depends on the specific insurance company.

Child riders typically cover all children in a household. To qualify for coverage under the rider, your child typically has to be between 15 days and 18 years old. Some child riders can offer coverage up until 21 or 25 years old, but it depends on the insurer. 

With most insurance companies, your child will also have the option to convert the rider into their own permanent life insurance policy if they elect to do so once they’re an adult.

Child riders are also much more affordable than child whole life policies. For instance, you might pay about $5 per year per $1,000 of coverage. So, you might pay $50 per year for a $10,000 child rider, which would come out to about $4.16 per month. For about one tenth of the cost of a child whole life insurance policy, you can ensure there’s some financial protection in place for your child. 

In total, if you’re a 35-year-old woman with few health complications, for instance, you might pay less than $26 per month for a $500,000 term life insurance policy — which is the most affordable type of coverage on the market. 

With an added child rider, that would bring your total monthly premium to less than $30 per month. Your total coverage in this scenario would be $500,000 for yourself, and $10,000 for your child. (Approximations of monthly rates are based off of Policygenius price data, but your exact rates will depend on your age, gender, health, and lifestyle factors, as well as the specific type of policy you’re purchasing).

5. Should I have my own life insurance policy, and does it fit my needs?

In most cases, it makes financial sense for you, as the parent, to make sure you have your own life insurance policy before considering coverage for your children.

 Your child depends on you financially — whether they rely on your take-home salary or your contributions to their care and household function. Life insurance exists to ensure that your family wouldn’t suffer financial hardship without you. 

Term life insurance is the best option for many parents. It’s affordable, comes with few tax restrictions, and lasts as long as you need it — typically until retirement. Plus, many major life insurance companies offer child rider options, so you can cover yourself and your child with one simple policy.

• Most financial planners recommend around 10 times your annual income — and if you’re a stay-at-home parent, you can match up to your working counterpart’s coverage with most insurers. 
• If you’re on a budget, you can also start with a coverage amount of $250,000 or $100,000 to begin to cover the cost of childcare.

The best time to buy life insurance is usually as soon as you realize you need it, since life insurance gets more expensive every year we age, due to increased risk. 

Granted, everyone’s financial needs are unique. Your ideal coverage amount and combination of policies will depend on personal factors — whether or not you split expenses with a partner, if you have other debt like a mortgage, and how much you have in liquid assets.

If you’re contemplating getting life insurance for the first time — for yourself or your children — you can connect with a financial advisor for personalized advice.

By Katherine Murbach, licensed life insurance agent and editor at Policygenius