Life Insurance for Your Children: How Does It Work? Do You Need It?

Children counting coins on floor - do kids need life insurance
•••   Frank van Delft / Cultura / Getty Images

Life insurance is one of the things that often comes up at important times in your life, when you get married, buy your first home or have children. Who needs life insurance is a question you might find yourself asking, and when you have children, you may wonder if you should buy some life insurance for them.

3 Reasons You Might Consider Buying Life Insurance for Your Children:

  1. To ensure their insurability later in life and save them the costs of life insurance in the future. 
  2. To create a savings vessel through a whole life insurance policy that will not only protect their insurability, but will also allow for tax-sheltered savings for them to use if needed later in life.
  3. To provide funeral cost expense money and funds for other related expenses, like loss of work or time off if your child should die due to an accident or illness unexpectedly.

Why Buy Life Insurance for a Child?

One advantage of buying life insurance for children is that rates are based on age and health. A young healthy child will have low costs. Imagine if your parents had bought life insurance for you, would that make your life easier? 

As people get older their chances of developing illnesses increases, and life insurance policies may require medical exams, or result in higher premiums. Taking care of a whole life policy for kids while they are young will provide them with a safety net later, at a low cost now.

2 Options to Buy Life Insurance for a Child

You have options when it comes to children's life insurance. Here are two ways you may consider for buying life insurance for children.

  1. Through a Universal or Whole Life Insurance Policy with the built-in tax-sheltered savings that can be transferred to the child's name when they become adults. This also gives them and potential long-term insurability and is a gift they can hold onto for life. Whole life policies are usually paid up after several years, and have a cash value. This can be a double advantage for your kids long term.
  2. By adding a child rider or endorsement to the parent's term life insurance. It provides no savings vessel, and is short term. Be sure and ask about whether it secures insurability for kids or is convertible to their own policy.

    What to Consider Before Buying Life Insurance for a Child

    Thankfully, most people will not have to live through losing a child.

    Before considering life insurance for children, parents should consider their financial situation. 

    For example, if you are struggling to make ends meet, insuring yourself as a parent first could be the priority. This would provide the financial stability to protect your family lifestyle by leaving a beneficiary necessary funds and ability to provide for your children if something should happen to you.

    Being Practical: Children and Life Insurance

    Losing a child is a terrible and unthinkable loss, however, when considering life insurance, you need to be considering the practical aspect, which is how much income or money will be lost as a result of the death in the family. If you can look at it from this perspective, it can help you determine if you need life insurance for your children now, or if you need to protect other sources of income or secure other areas first. 

    Things to Consider Before Buying Kids Life Insurance

    Being the head of a family is difficult. Balancing budgets and finding ways to make ends meet, especially when you have a young family can be challenging. If you are feeling pressured to buy life insurance for your children, here are some things to think about to help you weigh your options.

    1. Do you have emergency savings to cover other necessary costs? Could you save money into an emergency savings account instead of a child life insurance policy that could secure your family for any emergency (be it unexpected funeral costs for children, or home repairs, or medical bills instead?). 
    2. Do you have a good health insurance plan to protect your children and your family? A good health insurance plan is a good way to ensure their health and prevent some diseases. Also, consider dental insurance and other supplemental insurance plans. Good health leads to longer healthier lives and peace of mind. 
    1. Do you have a college savings fund for your children? Would you use a whole life child insurance policy as a savings fund for them?
    2. What are your risks? Accidents happen to anyone, but do you have specific health risks you are worried about? 

    Life Insurance for Kids? Some Statistics on Deaths in Children 

    According to the CDC FastStats, there are 24 deaths in children between 1-4 years old per 100,000 or 3,830 child deaths as of their latest data. The leading causes of death were: Accidents, Congenital malformations, deformations and chromosomal abnormalities, and Assault (Homicide).

    For Children aged 5-14, there were 5,250 deaths or 12.7 per 100,000 population in the same time span.

    The leading causes for death in 5-14 year olds include Accidents,  Cancer and Intentional self-harm (suicide).

    How Much Life Insurance Should You Get for Your Kids?

    If the unthinkable should happen and your family suffers a death of one of your children you should be prepared to be deeply affected. Aside from funeral costs, it would not be uncommon for one or both parents to have to take a leave from work, or for siblings to require counseling.

    It is recommended to purchase life insurance for children that could cover 6 to 12 months of the family income in the event that the above costs are required to help your family through a loss of a child. 

    If none of this happens, and we hope you and your family never have to live through this, then a whole life policy purchased for your children will give them a savings vessel that they can use later in life.