What Is Child Life Insurance?

Parents, grandparents, or guardians can buy life insurance to cover the death of a minor or a young adult. Some policies offer small amounts of cash to cover funeral and burial expenses, while others give a savings component that can be potentially used by your young one later.

Learn about child life insurance, including its uses, where to obtain insurance on a child, and the types of child life insurance.

Definition and Examples of Child Life Insurance

Child life insurance generally covers a death benefit to the participant's parent or guardian if a child dies. Some policies, however, will build cash value, like a savings account.

For example, Gerber Life Insurance's Grow-Up Plan is a complete grownup insurance strategy incorporating protection ranging from $5,000 to $50,000. It is meant to last for your whole child's life and has cash value your children access once they reach adulthood. There's a monthly premium charged to the family per dependent.

How Child Life Insurance Works

In many states, children's insurance can be purchased directly from an insurer, added to your life insurance policy, or purchased through your employer. Cost varies with the type of policy (whole life or term), and where it's purchased from (through an employer or on your own). Typically, the policy owner has to be a parent, grandparent, or legal guardian until adulthood is attained.

Types of Child Life Insurance

A term policy has the same coverage until the age of 25 or until you're no longer employed, whichever occurs first. A whole life policy offers coverage as long as premiums are paid.

Term Child Insurance

Term life insurance lasts for a specific period of time, such as a 10- or 20-year term. The cost to cover a child remains constant throughout the term. Term insurance for minors is regularly accessible through a child rider that you can add to either a term or whole life policy. This policy may have been bought informally or through a work-based policy.

Premiums may be covered until you reach 21 or 25 years of age, depending on the insurance company and policy, and you'll be able to cover several dependents with a single policy.

Coverage may expire after the term ends, and you can register your child for another child if he or she is still a minor. If your child is an adult, they can register on their own.

Conversion of your term policy into an entire life policy can be done before the policy expires. This is typically known as convertible term. If you purchase an entire life policy for your child, they will apply to be the policyholder when they reach adulthood and pay the premiums.

Whole Life Child Insurance 

Whole life child insurance is common insurance product for children which offers complete coverage over the span of their life. Whole life child insurance combines with a deferred cash value that grows as the particular child grows. At maturity, the policy can be transferred to the parent, if it doesn't already belong to you. Your child will have several options going forward:

• Hold onto the policy and finish paying the full premium paid during childhood. 
• Surrender the policy for the balance that has been paid off. 
• Purchase any additional life insurance they need.

Eligibility for Child Life Insurance

Insurers may require a health or physical checkup for life insurance for minor children, but the procedure for applying can involve questions about your child's health and habits, include:

• HIV status
• Chronic conditions including heart, lung, or kidney disease, cancer, and diabetes 
• Confinement at home due to illness or injuries
• For teens, driving violations, a suspended license, or driving while intoxicated.
• Hospital, neonatal ICU, or psychiatric hospital admission
• Chromosomal disorders
• Depression, drug abuse, or brain surgery or injury
• Terminal illness diagnosis

Some child life plans may have a low teaser rate for its initial coverage. Be sure you examine the details of your current policy according to your state as it may change the rate of your monthly premium. Once the teaser rate expires, your child's current age usually controls your monthly payment for the same period of time.

Here is a sample of rates for $10,000 in coverage. Note that rates may vary greatly depending on the type of coverage you get and how long it is intended to last for:

• $12 per child for a permanent life insurance plan for one child with Gerber.
• A child term policy cost about $5 per month by Banner for all children in the home.
• Work could be as low as 32 cents per month for child term coverage that lasts indefinitely.

Other maximums from traditional life insurance companies can go into the millions, depending on the insurer. However, these policies often require parents to have equal or greater life insurance.

If state law changes, the quality and scope of life insurance benefits could change for minors. Some states have laws that limit the ability of the insurer to reimburse payments if an insured dies of suicide or within a specific time frame. Typically, the premium is reimbursed, but there is no payout.

Do You Need Child Life Insurance?

The answer to this question hinges on the reason why you're purchasing an insurance policy. If you're searching for affordable term life insurance to pay for burial or cremation expenses, a term rider tacked on to your existing policy is usually an inexpensive way to carry out that.

Should you see the tax-free capital appreciation element as appealing, ask about an illustration from your insurance company that projects capital appreciation over a number of years. You'll be able to compare this to other investments you may make on your child's behalf, such as a 529 college savings account.

But bear in mind that this is not an investment, it's insurance. And it has associated insurance costs and maintenance costs. It is possible that those expenses will negate the advantage you want to get from this plan. As with any permanent life insurance policy, be sure to inquire about potential costs and receive adequate information regarding any cancellation charges you might incur if you decide to cancel the policy before a certain expiration date.

Key Takeaways

• Certain child life insurance plans provide a death benefit payment in the event of one's demise. If you make premium payments, certain plans guarantee a payment upon a child 's death.
• Child life insurance may be either a term or a whole life policy. Term policies will remain in effect until your child becomes an adult, while whole life policies will provide protection into perpetuity.
• Child life insurance may not be mandatory; read the fine print and compare it to other strategies for saving money for a child's future or unexpected expenses.
• Term life insurance premiums can differ widely depending on the type of policy you purchase. Term life sees the most affordable cost.