Does Life Insurance for Minors Make Sense?
You may have heard that life insurance for minors is a good way to invest in your child’s financial future. In some cases, it is. But in other cases, it’s not.
At the end of the day, it’s really a cost equation—do the costs of paying a premium for your child’s life insurance policy outweigh the costs of not having one?
The Pros of Buying Life Insurance for Minors
Life insurance is great for providing lifetime coverage, building wealth, and covering burial and medical costs.
Most life insurance carriers provide coverage for minors as whole life policies, however, only a few life insurance companies offer it at all.
A whole life policy’s biggest asset is that it provides lifetime coverage at a fixed rate—a blessing for a child as they grow older and develop more health conditions that would otherwise raise their premium rate later in life.
And a life insurance policy for a child obviously makes sense for families with a child dealing with a chronic or terminal illness. Although payouts tend to be low, they will help cover burial and medical costs or replace part of a salary while family members take time off from a job to grieve.
The Cons of Buying Life Insurance for Minors
Like any other life insurance policy, the younger you are when you buy it, the less expensive it will be.
However, an interest-bearing policy like whole life takes a long time to accrue enough cash value to pass on to your child by the time they can really use it. There are better ways to invest in your child’s future, such as a trust fund, which may make more sense.
The Rider Option
Term life insurance makes sense for families who can’t afford whole life as it’s only needed for a specific amount of time to protect your children for the 10 to 20 years they still depend on you. This incremental term model makes it less expensive.
A child rider can bridge the gap between coverage while they’re young and wealth-building when they’re older. Child riders can be converted to a permanent policy like whole life once the term on your policy is over. You can convert that policy to a whole life policy and then transfer it to your child. The new policy will accrue cash value they can enjoy later.
How Life Insurance for Minors Works
If you choose to buy a life insurance policy for your child, you can do so as early as 14 days after their birth and as late as their teens.
The only difference between your insurance policy and the one for your child is that although your child is the insured, you, your spouse, or another family member or guardian is the legal policyholder on behalf of your child as well as the beneficiary should an insurance payout be necessary.
If you are considering buying a life insurance policy for your child, the first thing you want to do is assess your budget, your child’s needs, the premium rate you will pay, and the best insurance companies you can find to determine if the cost/benefit equation comes out in your favor.