While discussions about life insurance are more common as you get older, some people advocate for buying life insurance for children. Even though no one ever wants to think about losing their child, life is not always as predictable as we would like it to be. If you’re considering getting child life insurance, take the time to weigh the pros and the cons. Additionally, there may be some more suitable options available, depending on what your financial goals are.

How does life insurance for kids work?

Life insurance for kids works similarly to the options that are available for adults. Most child life insurance policies are whole life insurance plans instead of term life insurance. Premiums are paid monthly to lock in and cover the costs of the insurance coverage.

Additionally, you may be able to add a child rider to your life insurance policy. Instead of opening a new policy for each child, you would pay a higher premium on your plan for the expanded coverage to all of your children.

Pros of buying life insurance for children

Secures the ability to get more coverage later in life

If your child grows up and develops some sort of ailment, disease or condition, they may have problems getting life insurance. However, if you open a policy for them when they’re young, it gives them coverage and can guarantee their ability to expand on this coverage later. 

Provides coverage for death-related expenses

Since life insurance for children works the same as any other life insurance policy, a death benefit is paid out when the policyholder passes. This money can be used to cover costs like funeral expenses, medical bills or counseling for the family. Additionally, if you are unable to work for a period of time, this could help to bridge the financial gap.

Builds an asset

Whole life insurance policies carry a cash value that builds over time. By choosing to invest in your children’s financial future early, you can create an asset that can put them a step ahead of the rest of the world. While there are arguments that there are better investment options for kids, it does not negate the fact that this is an asset you can pass on to your kids.

Cons of buying life insurance for children

May be better investment and savings options

Thankfully, the statistical likelihood of your child passing away is quite low. This means that the need for life insurance may not be as big as you might think. Additionally, life insurance policies are designed to replace income and help with debt. Most likely, your children will not have debt or be a significant income contributor to the household.

Instead, you could look into investing the money you would pay on premiums into other savings or investment accounts. You could find higher returns with more flexibility. And by starting to invest for your child at such a young age, you give the powers of compounding the longest chance to help the investments grow.

Fees

Life insurance policies come with quite a few fees that can eat away at the value of your investment. Many financial planners argue that you’d be much better off putting money into a savings account or investment account that does not charge as many fees or charges lower fees.

Ideally, it all depends on what your goals with the policy are. If you are truly looking for coverage in case your child passes, you may need to deal with the fees. But if you are trying to be creative in building an asset for your child, there may be more cost-effective options.  

Premiums

If your child wants to keep the policy after they move out, someone will have to keep paying the premiums. While there are options to cash-in a whole life insurance policy, you could lose value doing so. This could put your kid in a tough spot. They would have to decide to either cash in the policy or start making the monthly payments, which may not be something they had been planning on. If you are planning on continuing to pay the premiums for your kid, though, this drawback is a moot point.

Alternative to children’s life insurance

Choosing to start investing in your child’s financial future at a young age is a fantastic idea. However, there may be better options than child life insurance. You could take the money that you were going to pay premiums with and invest it in a savings account, investment account, certificate of deposit or any other value-building asset. Additionally, you could use these investments to start teaching your children about money, savings and growth as they get older.

Ideally, it would be best if you considered your financial goals and the reason you’re considering child life insurance in the first place. If you want complete coverage in case your child passes away, you may want to stick with a life insurance policy. But if your goal is to build an asset for your child while providing some protections for potential costs if your child passes, these other options could be a more appropriate fit.

The bottom line

Whether life insurance for kids is a good idea or not is highly debated by parents, financial planners, and people in the insurance industry. Some people say it’s a great way to build an asset and protect yourself from unexpected costs if  your child passes. Others say the likelihood of that happening is so low that you’d be better off investing the money in a more flexible and lucrative investment option.

About the Authors

Jason Lee is a U.S.-based freelance writer with a passion for writing about dating, banking, tech, personal growth, food and personal finance. As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skill sets with the rest of the world.