Child Life Insurance: What Parents Need to Know

As parents, we want our children to live happy, healthy, and long lives. But at the same time, it’s helpful to be prepared for the worst — including the untimely death of your child. While no parent wants to think about this tragic possibility, it’s prudent to keep all your financial options in mind.

Life insurance is certainly something to consider. Many parents feel more at ease after investing in life insurance policies for themselves that could help support their children in the case of accidental death or death from an unexpected illness.

But what about child life insurance? Why would a parent take out a life insurance policy on their child? How does it work, what are the typical terms, and who could benefit from taking out such a policy?

We’ll explore and answer these questions and more in this article.

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What Is a Child Life Insurance Plan?

Child life insurance is an optional form of insurance that covers the life of a minor. These plans are often purchased by a child’s parents, guardians, or grandparents.

Life insurance provides a cash payment in the case of the life insurance policy holder’s death. If the child passes away, the parents (or whoever the listed beneficiary is) will receive a cash payment. This money is often used to cover funeral expenses and other necessary costs. It can also be used to allow the child’s parents to take some time off work to grieve.

Most child life insurance plans are “whole life” products, otherwise known as permanent life insurance. This means that the coverage lasts the child’s entire life — so long as the premiums continue to be paid. Some plans can change once the child becomes an adult, while others maintain the same terms and conditions throughout the individual’s life.

Other insurers offer term life policy insurance for children, but this is less common. Term life insurance covers a person for a certain period — 20 years, for example.

What generally happens is that these plans remain under the control of the child’s parents/guardians until the child reaches a certain age (often 18 or 21). At this point, the child takes ownership of the policy and can continue, expand, or cancel it.

Most plans offer a set premium for the life of the plan so that the cost remains the same as long as the plan stays active. Most plans have annual premiums.

The death benefits on child life insurance plans are usually fairly low compared to standard life insurance. Amounts under $50,000 are common. Fortunately, premiums are also relatively low — for instance, a $50,000 policy for a newborn might cost around $19 per month.

What are the benefits of child life insurance?

Child life insurance is not necessary in many cases, as parents do not typically rely on their children financially. With that said, there are some benefits to having this form of coverage.

‍Guaranteed insurability: Because it is a whole-life plan that can be extended into adulthood, a child life insurance plan ensures that the child can continue to have life insurance throughout their life — often at the same price as originally quoted. This can be useful if the child develops a chronic health condition, takes up a risky profession, or has another risk factor that would make standard life insurance prohibitively expensive.

Death benefits: Should the child pass away, the beneficiary of the plan (usually the parents) will receive a cash death benefit. This can help cover funeral expenses or allow the recipients some time off work to grieve. Death benefits are usually in the range of $10,000 to $50,000, depending on the policy.

Cash value savings: Can you cash out child life insurance? Many life insurance plans do have a “cash savings” component. Part of the monthly premium goes into this account, and the beneficiary can withdraw from it or borrow against it. Once the child becomes an adult, they can surrender the policy and withdraw the full savings amount. However, note that there are certainly better investment options for kids out there.

Relatively low premiums: Many child life insurance plans have relatively low monthly or yearly premiums. Plus, rates are generally locked in for life — so the child can choose to extend the coverage once they reach adulthood.

What are the disadvantages?

Child life insurance is not without its drawbacks, however.

Low death benefits: Standard life insurance often has very high death benefits. Child life plans are usually much lower — generally in the range of $10,000 to $50,000.

Often unnecessary: Because the risk of a child passing away is usually low, these plans are often simply unnecessary. In many cases, self-insuring by setting aside some money each month to save for emergencies works well.

Not a great investment: Child life insurance plans are often sold as a “great investment” opportunity due to their cash value savings component. However, directly saving and investing in the stock market is a much better investment over time. Some of the best children’s investments are stocks, index funds, real estate, and cryptocurrency.

How Much Life Insurance Should I Get for My Child?

Most insurers provide a range of options for the amount of coverage. The primary variable is the death benefit amount — the amount that is paid out if the child passes away.

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Most child life insurance plans have death benefit amounts ranging from $10,000 to $50,000. Premiums scale with the coverage amount. So, the higher the benefit, the higher the monthly cost.

To determine how much coverage to get, it’s wise to weigh the following variables:

Estimated funeral costs: How much do you expect to need for a funeral? You can research costs in your area to find out.

Other savings: Do you have other savings set aside for emergencies and unexpected events? If you have a significant emergency fund, it may not be necessary to purchase life insurance. You could also choose to “self-insure.” With this approach, you would simply put a small amount of money into a savings or investment account.

Work flexibility: Another common reason some parents buy these plans is to have a financial cushion so that they can take time off work if the worst were to happen. However, it’s wise to weigh your work flexibility and benefits. Do you have substantial vacation time or a flexible boss? These factors can influence how much coverage you might need — and whether coverage is necessary at all.

Workplace benefits: You may be able to get child life insurance through your employer. Check with your workplace’s human resources department for details.

How much does child life insurance cost?

The cost of child life insurance varies from provider to provider. It also depends on when you purchase the policy — for instance, a policy for a newborn will be cheaper than a policy for a 10-year-old.

For an accurate estimate, it’s helpful to get a quote from an insurance provider in your area.

The chart below represents example monthly premium amounts for child life policies of various coverage amounts.

As you can see, the monthly premiums for a child between 0 and 4 are $8.21 for $20,000 or $19.03 for $50,000. While this is the range for a specific company, parents can use this as a rough estimate of costs to expect.

Note that the price changes by the child’s age, but this is only for when the policy is purchased. If you purchase a policy for a 3-year-old, the monthly premium will stay the same for the life of the policy. But if you purchase a policy for that same child when they are 6, the premium will be slightly higher. The older the child is at the time of the policy purchase, the higher the monthly insurance premium will be.

While these monthly premiums may sound reasonable, it’s helpful to do the math on lifetime costs.

For example, take a $50,000 policy purchased for a newborn:

• $19.03 per month
• $228.36 per year
• $4,110.48 over 18 years

These costs can certainly add up over time, so it’s important for parents to weigh the pros and cons.

How and When Can I Buy Child Life Insurance Coverage?

You can typically purchase child life insurance for any minor. While the child’s age limit for this coverage is generally 17, some insurers have a lower limit, such as 14. These plans are available from most major life insurance companies. Typically, only a parent or guardian can take out a plan for a child.

However, some insurers require a child to be at least 14 or 15 years old before a policy can be purchased. You can contact multiple insurers to learn their specific policies.

As for how to buy this coverage, you can usually request a quote online and sign up quickly. You will need to provide some information about the child to get an accurate quote. Child life insurance typically does not require a medical exam.

Alternatives to Child Life Insurance

Child life insurance is not necessary for many families — especially since there are several great alternatives.

Insurance alternatives

The main purpose of child life insurance is to provide financial assistance in the case of a child’s death. There are two main alternatives to consider:

Child life insurance rider

If you have life insurance yourself, you may be able to add a “life insurance rider” to your plan. This essentially adds the child to your existing life insurance plan, providing some coverage in the case of their death. This is usually cheaper than buying a dedicated plan, although it requires having your own life insurance policy.

Saving on your own

Parents or guardians can also opt to simply set money aside for unexpected events. This money could be placed in a savings account or invested in the stock market and withdrawn in the case of a tragic event or unforeseen circumstance.

Savings alternatives

A secondary use of child life insurance is to utilize the cash value benefit to serve as a savings/investment vehicle for the child. There are two good alternatives to this purpose:

Custodial investment account

Parents can choose to open a custodial investment account on behalf of their child. The account will be in the child’s name but managed by the parent or guardian until the child reaches adulthood. Funds can be invested in stocks, index funds, or other assets. The simplest way to get started is to use EarlyBird.

EarlyBird is an investment platform that parents can use to open UGMA custodial accounts for their children. EarlyBird makes it easy to set up an account and get started with investing in a diversified portfolio of assets. No investing experience is required!

529 plans for college savings

If the goal is to save up for the child’s future education, a 529 plan is another option. 529 plans offer tax benefits if the funds are used for qualifying educational expenses. Parents can contribute funds, invest them, and watch them grow tax-deferred. And as long as the funds are used for education, the beneficiary won’t owe any taxes when they withdraw the money. However, 529s are less flexible than custodial investment accounts in terms of how the funds can be used.

Wrapping Up

Child life insurance is inexpensive and offers the benefit of guaranteed insurability for the child once they become an adult (as most plans can be extended). With that said, the death benefits of such policies are usually on the low end.

The cash value forced-savings aspect is another child life insurance benefit worth considering. However, savvy financial planners have better options at their disposal — including 529 college savings accounts and custodial investment accounts.

If you want to save for your child’s future, a great way to start is to sign up for EarlyBird. EarlyBird is an investment platform that makes it simple to invest in the children you love.

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