Child Life Insurance: What Is It and Should You Buy It?

We all want our kids to live long, healthy lives, which is why child life insurance may not feel like a top priority. It’s only worth considering in rare cases when you’re dependent on your child’s income.

Learn more about this type of life insurance and find out if it’s the right choice for your family.

Child life insurance covers the life of a minor and is typically purchased by a parent, guardian or grandparent.

Child life insurance can be purchased as a stand-alone life insurance policy, or families can add coverage to an adult’s policy through an add-on called a rider.

» MORE: Best life insurance for children

In general, child life policies are whole life insurance — a type of permanent life insurance. This means coverage lasts for the child’s entire life, as long as the premiums are paid. Coverage amounts tend to be low, often under $50,000, and premiums are locked in, meaning they won’t go up. The average annual premium for a $25,000 policy on a newborn is $166, according to Covr Financial Technologies, a life insurance brokerage.

One of the benefits of whole life insurance is that it builds cash value. A portion of the premium goes to the cash value, which earns interest slowly over time and eventually can be withdrawn or borrowed against.

At certain ages, such as 18 or 21, the child can take ownership of the policy and continue coverage, buy more or cancel the policy altogether.

When deciding if child life insurance is right for you, consider the advantages and drawbacks of three popular policy features.

1. Guarantees future insurability

Child life insurance policies usually include a “guaranteed purchase option.” This means the child can buy additional coverage later without completing a life insurance medical exam.

The coverage available varies among policies, and the ability to buy more may be restricted to certain ages or life events like marriage.This feature can be useful if the child develops a chronic health condition such as diabetes, or chooses a risky career like becoming a firefighter that could raise their average cost of life insurance.

However, healthy people in their 20s are likely to secure affordable rates. So unless you suspect your child will need to find life insurance with a pre-existing condition, a child life policy isn’t necessary and is unlikely to meet future life insurance needs.

2. Acts as a savings vehicle for your child

You can withdraw money from the cash value or borrow against it. When the child reaches adulthood, they can surrender the policy and receive the funds in full. The cash value also grows tax-deferred, meaning you don’t pay taxes on the gains until you withdraw the cash. However, if you borrow a large amount from the policy, your child could end up owing income tax.

Keep in mind that the cash value account can be modest and take time to grow. If setting up savings for your child is your main goal, consider other types of investments first.

3. Covers costs if the worst were to happen

Losing a child is extremely tragic, and you may incur unexpected costs. Child life insurance policies pay out a lump sum in the event of a death and can be used for expenses like burial costs or grief counseling. It can also help cover the costs of running a business if you’re the owner and need to take time off.

Note that because it’s uncommon for a child to die in the U.S, according to data from the Centers for Disease Control and Prevention, the risk of going without coverage may not outweigh the cost of the policy. ^[0]

When it makes sense to buy life insurance for a child

Assess your budget and look at your own life insurance needs before buying a policy for your kids. In general, your own life insurance is more important than your child’s because it can help cover your family’s living costs or other expenses if you were to die.

These are only a handful of situations where taking out a policy on your child might make sense.

Buying a child life insurance policy might be worth it if…

• Your child is an actor, model or social media star bringing in a substantial income.

• Your child is a teenager who’s working part-time to help cover household expenses.

• Your child looks after younger siblings and offers the kind of help you’d need to outsource otherwise.

Buying a child life insurance policy isn’t worth it if…

• You want to invest and maximize savings for your child’s future needs.

• You are trying to set aside money for funeral expenses.

You may want to consider adding a child term rider to your own policy instead of purchasing separate coverage for your children. In some cases, you can convert child riders to permanent coverage when the term is complete. Not all insurers offer these life insurance riders, and coverage amounts may be limited.

If you have group life insurance through your work, you may also have the option to buy supplemental life insurance for a child or spouse. However, group life plans are often tied to your employment, which means if you leave your job, you may lose your coverage.