Term Life Insurance For Children

Everything you need to know about term life insurance for children and whether it is a worthwhile investment.
By Mike Parker
Updated Jul 31, 2022
Parents who signed their child up for Term Life Insurance.
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In the U.S., you can’t buy a term insurance life policy for a child. However, if you buy a term life insurance policy for yourself, you may be able to add a rider to cover all of your children until they reach a certain age.

In this article, we will discuss what term life insurance for children entails, how it works, if it is worth it, and how much it costs.

A child who has Term Life Insurance.

Source: Unsplash

What Is Child Life Insurance?

Similar to life insurance for an adult, a life insurance policy for a child is a contract with an insurance company, in exchange for a premium, that guarantees payment to an insured's beneficiaries when they die.

Premiums are typically paid every month or year in exchange for the promise that if the child dies, the insurance company will pay a death benefit.

With an insurance policy for an adult, the policyholder is usually the person who is covered by the policy. However, with a child's insurance policy, the person who owns the policy is the child's parent, grandparent, or guardian. 

Terms You Should Know:

Premiums: These are monthly or annual amounts that policyholders pay to keep their coverage.

Death Benefit: This is the amount paid to the beneficiary of an insurance policy after the policyholder’s death.

Beneficiary: A person who receives the death benefit (payout) from a life insurance policy in the event of the policyholder’s death.

Life insurance policies for children are usually whole life insurance policies, which means they will cover them for the rest of their lives as long as premiums are paid. 

Premiums are usually set, so they won't increase over time and part of the premiums go towards building cash value, which can be used while the child is alive.

What Is Cash Value?

Cash value is the portion of your policy that earns interest and may be available for you to withdraw or borrow against in case of an emergency.

What Is Term Life Insurance?

Term life insurance is a policy that covers a policyholder for an agreed-upon period. This means that a term life coverage plan will have a start date and an end date.

For example, a person could purchase a term life insurance plan with 30-year coverage. If they die during those thirty years, their beneficiaries will be able to collect the plan’s death benefit.

However, if the policyholder dies after the 30-year term, the contract will have ended, and there will be no death benefit for their beneficiaries.

How Does Term Life Insurance Work?

Term life insurance plans work exactly the same as other life insurance policies. Before you sign up, you’ll have to figure out how long you would like to be covered and where you can pay the premiums.

However, keep in mind that there are different types of term life policies that offer unique benefits.

Do I Need Term Life Insurance?

If you are unsure about the benefits of various life insurance policies, send your questions to Help@PolicyScout.com or call us at 1-888-912-2132 to get personalized assistance from one of our skilled Medicare consultants.

Children who can play freely because they have Life Insurance.

Source: Unsplash

How Does Life Insurance for Children Work?

If your child has life insurance, it's likely to be a whole life insurance policy that covers between $10,000 and $50,000. You can also get insurance for a minor by adding a rider to your term life insurance policy.

Child life policies and child insurance riders don't generally require that you get a medical exam. Most of the time, you only have to answer a few questions about the health of the child.

What Is a Rider?

A rider is an optional coverage or feature you can add to your life insurance policy, often at an additional cost.

Remember that a term rider for children doesn't mean that the child has an insurance plan. Coverage for them would only be an addition to someone else's plan. If the main policy lapses, the child rider coverage also ends. 

Child term riders also usually only cover a child until they turn 18 or 25, based on the insurance company.

If you want to get life insurance for your child, it's always best to buy a separate policy so you know they'll be covered for the rest of their lives.

Children that have Term Life Insurance.

Source: Unsplash

The Pros and Cons of Life Insurance for Children

Pros of Life Insurance for Children

There are various advantages of getting your child life insurance, such as:

It increases the child’s insurability: Child life insurance policies usually offer a guaranteed purchase option, which means additional coverage can be bought without completing a medical exam.

This can be useful if the child develops a serious health condition or chooses a high-risk career, such as a pilot or miner, because both can dramatically impact the cost of life insurance and your child’s insurability.

It is an investment vehicle for your child: The policyholder can withdraw money from the cash value account of the policy.

When the child reaches adulthood, they have the option to have the value of the policy paid out to them in full. This payout can cover costs like school fees or a down payment on their first home, and it grows tax-free — meaning you don’t pay taxes on the gains until you withdraw the cash.

Final expenses after the death of a child: The lump sum payout in the event of the child’s death can be used to cover funeral costs, burial costs, medical fees, or grief counseling. 

A sick child who has Term Life Insurance.

Source: Unsplash

Cons of Life Insurance for Children

Even though there are many benefits to having life insurance for your child, there are also disadvantages, such as:

There might not be a need: Healthy applicants in their 20s are likely to secure competitive rates for life insurance. So if you think the chances of your child developing health complications is low, children’s life insurance is not worth it.

In the United States, it is relatively uncommon for a young child to die. According to the Centers for Disease Control and Prevention, the country's infant mortality rate fell to an all-time low in 2019, with 5.6 deaths per 1,000 live births.

There are other alternatives: Whole life insurance policies for children rely on you paying premiums, and they can take time to grow. 

Other options might be worth considering before choosing children’s life insurance for investment purposes. Two common options are a Roth IRA and 529 plans.

Life insurance plans have a low rate of return: Permanent life insurance policies can build cash value, but they do so very slowly. It takes roughly 15 years before the cash value of a policy breaks even with the premiums paid when you buy life insurance for a newborn.

Money can’t be spent on the child now: When you take out life insurance for your child, you’re giving up money that could be used on other things to support their wellbeing.

Because it is unlikely for your child to die at a young age, your money might be better spent elsewhere.

What Are Roth IRAs and 529 Plans?

Roth IRA: An individual retirement account for a child.

529 Plan: A tax-advantaged savings account. This is ideal if your child’s future education is your main priority

What Is a Children’s Life Insurance Policy Payout Usually Used For?

While children’s life insurance policies can differ between providers, most policyholders will use the payout for funeral expenses, outstanding medical bills, and sometimes grief counseling costs.

UseWhy Do I Need It
Funeral ExpensesIt is hard to lose a child, and parents don't want to think about how to pay for the burial costs while they're going through a difficult time. Depending on your plan, the policy can cover the price of the funeral service, the type of burial, and other administrative matters.
Medical BillsIf a child was sick before death, the parents are often left with unpaid medical bills. These bills could be for medical treatment or emergency care. Life insurance policies can be used to pay off debts that may includehospital expenses, ambulance fees, and other medical costs.
Counseling ServicesLife insurance money can also be used to pay for grief counseling and therapy sessions for family members or loved ones. This small measure of comfort can be very useful, especially when it would otherwise be viewed as a steep extra expense.

Two sick children whose medical bills will be covered by their Life Insurance.

Source: Unsplash

What Does Life Insurance For Children Cost: Term Vs. Whole Life? 

Child life insurance is generally not expensive. Let’s have a look at some of the typical costs and how they differ between term and whole life insurance:

Cost of Term Life Insurance for Children

In most cases, child life insurance costs the least and only covers $10,000 to $20,000 for each child.

With term life insurance, the insurance policy is not written in the name of a child, but rather a rider to a parent's life insurance policy. It covers all children, even if they were born after the policy was set up.

For example, the cost of a rider policy with one of the United States’ biggest insurance providers will cost you around $50 per year, regardless of the number of children in the family.

Cost of Whole Life Insurance for Children

Compared to a term life insurance rider, whole life insurance is more expensive. But for an adult who starts a whole life insurance policy at age 35 or 40, the cost is very low.

Whole life insurance policies for kids usually cover a range of $5,000 to $50,000, but some policies have a lower cap, while others have a higher cap. The cost of life insurance for a newborn in most states ranges between $30 and $200 a year, with some paying as little as $2.17 a month.

Most of the time, these policies don't ask for much more than the child's:

  • Full name.

  • Date of birth.

  • Gender (sometimes).

  • Resident state.

Generally, there aren't any questions about medical history and no physical or medical examinations are required.

Is a Term Life Insurance Rider the Best Option for a Child?

Adding a child rider to your term life insurance might be the right option, depending on your circumstances.

The costs of buying a separate life insurance policy for your children might not make it worth it. However, if you add a child rider to your existing life policy, it is generally more affordable and can offer similar levels of coverage.

For example, if the cost of a funeral would put your family in debt, you might want to think about adding a child rider to your term life insurance.

When a child rider is about to expire, you have the option to either convert it into a separate child life insurance policy or let it run out. 

Most child riders can be turned into a long-term life insurance policy with up to five times as much coverage as the original rider. A $50,000 whole life insurance policy for your child might be possible if you originally had $10,000 on your child rider.

However, for most people, permanent policies aren't right because they cost five to 15 times more than term life policies. In most cases, it would be cheaper for your child to find a new plan on their own.

Should I Buy Child Term Life Insurance?

If you’re interested in buying life insurance for children, or learning about life insurance coverage — both term and whole life — we’ve got the latest information and articles in our life insurance hub to help you find a plan.

Our guides will help you understand life insurance costs, enrollment options, different plans, and coverage.

If you need more help, send your questions to Help@PolicyScout.com or call us at 1-888-912-2132 to get personalized assistance with finding a plan.

A sick child with Life Insurance.

Source: Pexels