The Value of Life Insurance for Children
Key takeaways
There are benefits to buying a permanent life insurance policy for a young child—even a baby.
Insuring your children (or grandchildren) can give them a financial head start.
Permanent life insurance builds cash value from childhood through adulthood.
Lynda Taylor is an assistant director in Risk Product Development at Northwestern Mutual.
There’s no reason a kid needs a life insurance policy, right? Wrong! Actually, there are many benefits to buying a life insurance policy for your child.
Parents have enough to keep them busy, so we’ll quickly explain what child life insurance is and why you might set it up for your kids.
What is child life insurance?
Child life insurance is a life insurance policy on a child that a parent (or grandparent) purchases when the child is young. One choice is permanent life insurance, which is designed to last the child’s entire life.
It may seem strange to purchase insurance for a child before they have dependents or significant money. But there are benefits that make a lot of sense, like protecting their future insurability and the potential to build cash value.
Why do parents buy life insurance for their child?
Basically, by insuring your children or grandchildren, you’re giving them a financial head start. Here are the top reasons parents get life insurance for kids:
Protect their insurability
The healthier you are, the less expensive your premiums on a policy will typically be. So, by insuring a child before they’ve developed any chronic conditions, you’re able to get them a low premium that will be in place for life. And, if anything changes with your child’s health, their policy will already be in place to protect them. This can also help if they choose a job that keeps them from being eligible for a high-quality policy.
Some companies offer an optional “rider” or benefit on the policy that guarantees your child’s ability to purchase additional coverage later in life—regardless of any changes to their health. At Northwestern Mutual, we call ours an “Additional Purchase Benefit.”
The child can take advantage of this benefit every three years, starting at age 22, until age 40. They can even use their benefit earlier than scheduled if they marry or have a child. These milestones often cause the need for more coverage.
Cash value
As you pay premiums on your child’s policy, it will build cash value that’s guaranteed to grow tax deferred. The younger your child is when you buy the policy, the more time you give it to grow the cash value. This means your child will have the flexibility to access more money down the line that they can use for anything, anytime—like a down payment on a home or paying for a wedding.
Death benefit
If the unthinkable were to happen, your child’s insurance policy would not only pay for the funeral expenses. It could also give you the flexibility to take all the time you need to grieve.
Faster underwriting
Life insurance usually requires a check into the medical status of the person being insured. This is called “underwriting.” For children, this is usually simpler and faster than for an older person.
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At what age can a child get life insurance?
Life insurance for kids can start very early in a child’s life. At Northwestern Mutual, our minimum age is just 15 days old.
Many of our policyowners have seen the benefit of life insurance over time. When they have their own children, they consider it an important milestone for a newborn.
Things to keep in mind with life insurance for a baby:
- You might be able to complete most of the paperwork digitally. Many insurance companies now offer a way to sign electronically, too. Just be sure to read everything before signing. Ask questions about anything you don’t understand.
- Some companies might need a Social Security number to sell a life insurance policy. (We don’t have that requirement at Northwestern Mutual.)
Take the next step.
Get answers to your questions about life insurance for children so you can put protection in place.
Get startedFrequently asked questions about child life insurance
We’ve been in the life insurance business for a long time—over 165 years. Here are two questions we often hear.
Can both parents have life insurance on a child?
Parents who share finances typically have one policy on a young child. This is usually the most efficient approach. For divorced parents and those with separate finances, it might be possible to have two policies, depending on the insurance company. Often there’s a limit on the amount the child can be insured for.
It’s a good idea to routinely review your beneficiary designations on life insurance and other financial products. Make sure that the people you want to get the money are on the paperwork.
How much life insurance should I have with kids?
As a parent, you might have a need for more life insurance than you did before kids. It depends on your debt, whether you have a mortgage, how many kids you have, and your lifestyle. You can learn more about life insurance for new parents. Then, talk with a financial advisor to figure out the right amount for you.
Other ways to build your child’s financial future
Permanent life insurance is a flexible, long-lasting financial tool that can work alongside other parts of your money. For example, you can pair it with a 529, which is targeted for education savings.
Life insurance can also be a good complement to a custodial account, which is opened by an adult on behalf of a minor. You may also want to establish savings, like , for your child. Some banks even offer student savings accounts for high school and college students.
Depending on what your savings goals are for your child, talking over your strategy with a financial advisor can help. Together you can create a better plan for your money that combines protection with financial growth.
We’re happy to match you with one of our advisors! By the way, many advisors don’t charge money to have a conversation with you. And they might be willing to meet virtually, so you won’t have to pack up the kids or find a babysitter.
