Do I Need Life Insurance for My Child?

So, you’ve read all the parenting books, finished painting the nursery just the right color, and are wondering what exactly should come next - besides the baby of course. 

Becoming a first time parent can be a stressful process for anyone - especially when it feels like everyone has a differing opinion on how to do it just right. 

At Berry Insurance we understand that when your new bundle of joy arrives, you’ll want to do anything to protect them and your family. This leads many to consider obtaining life insurance for their children. But is this coverage entirely necessary? 

Whether you’re becoming a new parent soon or already have a couple of children running about, in this article we’ll explain why you should or shouldn’t consider life insurance for them. 

What is life insurance? 

First off, let’s start with the basics. 

Life insurance coverage provides financial security to the family of the policyholder if they were to pass away.  

Life insurance funding paid out to the beneficiary of a policyholder may be used for funeral costs, debt payments, continuation of the policyholder’s income, college savings for children, and other final expenses. 

Term and permanent life insurance 

There are two major types of life insurance to know about: term and permanent. 

Term life insurance provides coverage for a set period of time, often 10 to 30 years. If the insured were to pass away during the established term, their beneficiaries receive a death benefit payment, but the policy loses all value once the term ends. 

Permanent insurance instead offers lifetime coverage including both a death benefit, which is the compensation paid to the beneficiary once the insured passes away, and a cash benefit, which is a savings account available to the insured while they are still alive. 

In this article we will be focusing on permanent policies, which is standard for children life insurance policies. 

What life insurance policies are available for children? 

Life insurance for children is typically limited to permanent or “whole life” policies. Children can often be eligible to qualify for life insurance 14 days after birth. 

Some policies will provide coverage until the child becomes an adult or reaches their 25th birthday, where they are then able to transition the policy into a standard permanent policy or potentially use the cash value of the policy upon its expiration. However, this will vary greatly depending on the insurance carrier, so it would be best to examine the details and discuss your options with your insurance agent or provider. 

What benefits can children's life insurance policies offer? 

While having your children covered by life insurance policies can feel like the best way to provide your family with peace of mind, it’s important to discuss the pros and cons. Benefits of having this type of policy can include: 

Guaranteed coverage even if health changes occur

Securing life insurance coverage for your child when they are young and healthy can be beneficial to set them up early with guaranteed protection even in the event that their health changes. 

Since we cannot always be aware what health conditions or disabilities our children may develop as they grow, obtaining coverage at a young age could prevent them from being disqualified in the future. Additionally, if your family has a history of a specific health condition, securing life insurance coverage for your child early on could be the best way to guarantee insurance before they are potentially affected by the condition later in life. 

Low premiums

Because they are so young and lack dependents as well as other considerations that affect the cost of life insurance, policies for children will be more affordable than life insurance policies obtained as an adult. 

Purchasing coverage for your child early on can be a good way to secure a low premium for the life of the policy. 

Cash value

Some children's life insurance policies will have the option to be “cashed out" once the child/policyholder reaches 18 years of age, or the life of the policy ends. This could provide your child or family with useful funds built up over the life of the policy, which can then be used for college savings or other important expenses. 

Some permanent life insurance options for children will instead offer cash value benefits that they can access later in their life, such as a down payment on a home or retirement. 

So, is life insurance necessary for my child? 

While the benefits we outline above can be helpful for certain families and situations, children's life insurance policies are in no way a necessity for every family. 

This is because life insurance is typically suited for individuals with dependents whose family will need a financial safety net if they were to pass away. So unless your family will be financially dependent upon your child, providing them with a life insurance policy may not be the best investment for your family. 

If you are looking to invest for your child, there are better options than through potential benefits a permanent children's life insurance policy could offer you. This could include obtaining a life insurance policy for yourself or your spouse/partner or setting up a savings account for your child’s future. 

Additionally, if you set-up your child with a permanent life insurance policy, the terms of coverage on the policy may not be able to be altered later - thus potentially not covering your child properly into adulthood. 

Narrowing down necessary coverages

Even with the benefits we outlined above, the necessity of life insurance policies for children will come down to each individual family and their specific circumstances. In most cases, however, it would be a better investment for parents to secure life insurance coverage for themselves, if they are in a position to do so. 

If you’re interested in more information regarding when you should consider purchasing life insurance coverage, check out our guide on the best and worst times to get a life insurance policy. 

Still stressed about what to do before your newborn arrives? Then learn what updates you’ll need to make to your insurance come delivery day in this article: 3 Updates You Should Make To Your Insurance When Having a Baby.