Is child life insurance worth it? Not if you’re the parent

Christel Deskins

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, but our reporting and recommendations are always independent and objective. Child life insurance is not worth it for parents who want to use […]

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, but our reporting and recommendations are always independent and objective.

  • Child life insurance is not worth it for parents who want to use it as a savings vehicle — there are better options to put money away.
  • It’s a whole life insurance product that usually has a cash value, but isn’t as expensive as it is for adults.
  • Grandparents typically purchase child life insurance as an inheritance for grandchildren to be used towards college, a wedding, home, or car.
  • See Business Insider’s picks for the best life insurance companies. 

As a parent, the safety and security of your children is your priority.

Securing their financial stability as they grow and providing for them in case something happens often brings up the question of whether you should purchase child life insurance.

Let’s make it clear: Parents should not purchase child life insurance as a savings vehicle for their children. Instead use a trust or UTMA to leave proceeds from your own life insurance and investments for your children. 

However, that does not mean that child life insurance is never worth it for anyone. The term “child life insurance” or “life insurance for children” is misleading because it assumes the parent is purchasing. The usual purchaser of child life insurance policies are actually grandparents — something we’ll get into later on.

Child life insurance policies can be purchased for a child as young as two weeks old.

It’s usually whole life insurance, which means part of the premium you pay every month is invested. You pay that premium for your entire life, and over time, you can withdraw some of that money (called “cash value”) from the policy before you die. It will pay out the full value should you die at any point.

Because minors can’t own life insurance policies, nor can they receive payouts, the adult is the policyholder and manages the account. Once the child turns 18, they can become the policyholder and withdraw or borrow against the policy’s cash value.

Whole life is generally used for two things: to create this cash value a policyholder can withdraw or borrow against during their lifetime, and to ensure one’s heirs get a payout when the policyholder dies, no matter their age. The second purpose isn’t really relevant to child life insurance; it’s the cash value that’s up for discussion.

The other type of life insurance is term life insurance, which is generally recommended for any adult with a dependent. Term life insurance covers a 10, 20, or 30-year period; if you die during that period, your beneficiaries get your payout. If you die after that period, they don’t — by that time, the assumption is that they’re no longer dependent on you. In most cases you aren’t talking about term life insurance when you discuss child life insurance.

For most parents: No, child life insurance isn’t worth it.

The question adults ask when considering purchasing life insurance is: If I die, are people relying on my income — spouse, children, parent? If the answer is yes, then you purchase life insurance typically 10 times your annual income. For example, if you make $75,000 per year, then you would purchase a life insurance policy for $750,000.

However, child life insurance is a whole life insurance product sold specifically for a child. So now the question is: Are other people are dependent on them for a living? Unless your child is a child actor who helps support the family, for most parents the answer is no — which is why parents generally shouldn’t buy child life insurance. 

Knowing that most children don’t have dependents, child life insurance is marketed as having the following benefits: It protects the insurability of the child, and it can be a savings vehicle. Protecting insurability is a concern for families with genetic health issues afraid the children might inherit the disorder when they get older, Prudential certified financial planner and life insurance specialist Barbara Pietrangelo told Business Insider.

It is also marketed as a savings vehicle for parents, but there are better options to put away money for the future.

If saving for your child’s future is the goal, it is more important that both parents have sufficient life insurance policies that name their child’s trust or UTMA as the beneficiary of life insurance, stocks, and bonds on behalf of the child. 

Under the UTMA, a parent establishes an account for a child at a life insurance company or financial institution. The parent selects a custodian who controls and manages the assets (life insurance, stocks, real estate) for the child until becoming an adult, usually at 18 years old.

Although setting up a trust is more expensive, it gives you more control over how the assets (life insurance proceeds, stocks, cash) are spent and when your child gets access to the funds. Most people who establish a trust for their children do not have their children receive full control until the child is at least 25 years old — instead of 18 years old as with a UTMA.  

Because child life insurance is whole life insurance and has a cash value that can be borrowed from, whole life insurance for adults can cost six to 10 times more per month than an adult term life insurance policy. However, that isn’t the case for child life insurance.

Pietrangelo told Business Insider that rates for a child whole life insurance policy are not as expensive as people think. A $100,000 policy for a 4-year-old girl, she found, would currently be quoted at $25/month — basically $5/week. 

Business Insider looked at a few quotes for a $50,000 child life insurance policy for a 3-year-old girl in Virginia, and didn’t see any policies worth more than $75,000. Here are a few sample quotes we were able to pull:

Company  Medical Exam Required Monthly Premium
Mutual of Omaha No $16.00
Gerber Life No $34.67
American Family No $27.91

According to the quotes we found, costs of child life insurance break down to less than $10/week.

Why grandparents buy child life insurance

It’s not usually parents who buy child life insurance policies, Pietrangelo said. Grandparents use it to give their grandchildren a financial legacy that can be used towards college, a wedding, home, or first car purchase.

When you think about how much grandparents spend on their grandchildren — $160 sneakers or $200 in toys and video games — a $25/month child life insurance policy is worth it, Pietrangelo said. CNBC reports that grandparents spend around $805 a year on gifts for their grandchildren. 

That $25/month child life insurance policy acts more like a forced savings feature that guarantees you’ll put money away for the child, eliminating the temptation of a savings account you could dip into any time. It’s low cost also means it can work for grandparents on a fixed income.

But remember: If you’re considering it, only purchase the amount you can afford. It absolutely isn’t worth it if you can’t make the payments comfortably.

As a doting auntie, I spend generously on toys and gifts for birthdays and holidays. Pietrangelo’s analogy made me think about how much better my money for toys could have been invested. I would rather leave a legacy for them to enjoy a gap year from college traveling the world. 

Although grandparents, aunts, and uncles can purchase child life insurance for grandchildren, nieces, and nephews, they need permission from the parents. They will need the child’s Social Security number and doctor’s information — to make sure the child is reasonably healthy — when completing the insurance application. 

You can buy child life insurance online from a life insurance company or from an agent.

During our sample quotes search, the online tool limited the amount of child life insurance to $50,000. However, it is possible that an agent can get you a higher policy amount; Pietrangelo was able to find quotes for $100,000. It is best to comparison shop for the best rates and ask your current life insurance provider if they have child life insurance plans, and any discounts for existing customers.

Remember that child life insurance is not the best investment savings vehicle. If you are looking to leave stocks, bonds, or your life insurance to a child, then a trust or UTMA is the best vehicle for that.

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