Should You Buy Life Insurance for Children?

You love your kids more than anything - even if they draw on your walls, throw tantrums at the grocery store, and make your wallet bleed. As a result, you’d do just about anything to protect them and ensure that they have the best life possible. That’s why you might be wondering if you should buy life insurance for them.

Those Gerber insurance ads that you see on TV make life insurance for children seem like a really good idea. After all, they tell you that buying a policy for your kids is a great way to save money for their future and ensure that they can get coverage later in life.

But you’ve also heard people say that buying life insurance for children is a gigantic waste of money.

Confused yet? We don’t blame you!

That’s why in this article, we’re breaking down the pros and cons of buying life insurance for children.

Life Insurance Policies for Children

Most life insurance policies for kids are whole life insurance policies (a type of permanent life insurance). This means that they include a death benefit and a cash value that grows over time - but at a snail’s pace.

Whole life insurance policies are usually much more expensive than other types of life insurance policies. So even though policies for children tend to be small, you’ll still end up paying loads of money for whole life insurance coverage for your kids.

Now, if you’ve researched life insurance before, you probably know that there’s another major category of life insurance policies: term life insurance policies. Term policies give you coverage for a specific number of years. And as a result, they tend to be much cheaper than whole life policies.

The catch is that you can’t buy standalone term life insurance for children. However, if you have your own term life insurance policy, you can pay extra to add some coverage for your kids.

The pros of buying life insurance for children

Here’s why some people argue that buying life insurance for children is a smart move:

It’s a way to save money

From before your first kid was even born, you were probably bombarded with information about how important it is to save money for your kid’s future. So when a life insurance company tells you that you can save money for your kids by getting life insurance for them, you might be pretty darn interested in learning more.

Like all whole life policies, whole life policies for kids include a cash value that grows over time—but slowly. You can also borrow against the cash value or cash it out by surrendering the policy altogether. And you won’t pay any tax on the money that accumulates on the cash value until you withdraw money or surrender the policy.

In theory, then, the cash value of a whole life insurance policy can be a savings vehicle that lets you save money for your kid’s future.

It helps your child qualify for life insurance later on

It’s always devastating to think that your child could develop a serious illness early on in life. But it’s even worse to worry that a medical condition could prevent them from getting the life insurance coverage they’d need as an adult.

That’s why you might be relieved to learn that buying life insurance for your children guarantees that they’ll be able to get some coverage in the future. This will be true even if your kid develops a serious illness during childhood. So it seems like a no-brainer that you’d get coverage for your kids, right?

It can cover funeral costs and other expenses

Another big reason why people buy life insurance for children is that it can cover funeral expenses and other related costs. For example, if you have coverage for a child who dies, you can also use the money to pay for medical bills, any counseling that your family needs, or expenses that you might not be able to cover if you have to take a leave from work to grieve.

The Cons of Buying Life Insurance for Children

The pros of buying life insurance for children may have you sold on the idea. But if you look a bit more closely, you’ll see that each pro can also be a con.

Here’s why:

It’s not the best way to save money

As we mentioned earlier, the cash value of a whole life insurance policy grows very slowly—much more slowly than a traditional investment account would.

But that’s not even where the bad news ends: Your insurance company has to protect themselves against the chance that your child could die and they’d have to pay up. How do they do this? By deducting hefty fees from your premium payments. This further limits the already small returns you get on the cash value of the policy.

So if your goal is to save money for your kid’s future, you’re better off opening a traditional investment account.

It qualifies your kid for only limited coverage in the future

A whole life insurance policy may provide some guaranteed coverage for your kids in the future. But this guaranteed coverage amount is pretty minimal. And it’s rarely enough to give them the financial protection their families would need down the road.

Of course, some kids will end up developing serious health conditions before they become adults. And for these kids, having even a small amount of guaranteed coverage for the future would be a lifesaver if it’s the only insurance they’d qualify for.

But the reality is that most kids have no trouble qualifying for adequate life insurance coverage in their 20s and 30s. So shelling out money every month for a small amount of guaranteed coverage won’t really benefit them.

It’s an unnecessary dedicated funeral fund

There’s nothing stopping you from buying life insurance for your kids to cover potential funeral costs and related expenses. But it’s very unlikely that your kid will die during childhood.

And even if the unthinkable happens, you can cover the expenses with money that you’ve stashed into an emergency fund instead. With an emergency fund, you can access and use the money for any type of emergency, like an urgent home repair or unexpected travel costs to visit a sick relative. When the money is tied to an insurance policy, on the other hand, you won’t be able to access it unless your child dies.

Think carefully about buying life insurance for children

Before you buy life insurance for your kids, think carefully about why you want to buy it and whether it’s the best way to achieve your goal. In addition, make sure that it doesn’t get in the way of saving the money your kids will really need and covering the biggest risks your family is likely to face.

Depending on your family’s needs, you might decide that buying life insurance for your kids really is the right move.

But if you decide that the limitations outweigh the benefits, think about other options for protecting your family financially. In particular, make sure that you and your partner have adequate coverage so that your kids will have the money they’ll need if you die.

Laura McKay

COO & Co-Founder

About the Author

Laura brings 7 years of experience working in insurance & strategic operations as a management consultant at Oliver Wyman, after experiences at Manulife and Munich Re. In 2017, she launched a successful initiative for the World Economic Forum focused on innovation in insurance, working closely with insurers, tech pioneers, and policy-makers.

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