Why children's life insurance?
At first glance, getting life insurance on a child can seem unnecessary. After all, they are the youngest and therefore usually the healthiest among us. Plus, they don’t generate any income or have anyone relying on them financially. It might be easy to dismiss the idea outright.
However, there are many valuable benefits that a child’s life insurance policy can bring them in both the short and long term:
- Locking in / guaranteeing insurability
- Maximizing the power of compound interest over time to generate cash value
- Providing permanent life insurance coverage that will become invaluable when they have kids of their own
- Creating generational wealth
- Providing protection in case of premature death or illness
How does life insurance for minors work?
Minors under the age of 18 are ineligible for term life insurance coverage, so any policy written on the life of a minor will be a permanent policy of some kind.
Whole life and indexed universal life are the most common types of permanent life insurance that are used in children’s life insurance. Whole life is generally more conservative on the cash value side with more contractual guarantees. Indexed universal life, or IUL, comes with more cash value growth potential with less contractual guarantees.
Since the main goal of a life insurance policy for a child is usually to grow cash value, the premium is usually set at whatever amount the person setting up the policy is comfortable contributing on behalf of the child. This amount generally ranges anywhere from $25 to $250/mo, and the policy is designed based on that recurring monthly premium. This premium will be paid indefinitely, first by the parent or grandparent who is setting up the policy, and then perhaps later by the adult child once they have reached an age that the policy owner is comfortable signing the policy over and allowing them to take ownership of it.
As the years pass and premiums are paid, cash value grows within the policy and can be accessed later in life through withdrawals and policy loans for whatever the child (or, by then, grown adult) may need it for. All the while, they are also protected with the permanent life insurance coverage that the policy simultaneously provides.
The application process to get life insurance on a child is generally simpler and easier than on an adult. There are typically no medical exams or physicals required, and the policy will be underwritten based on the child’s medical records.
Alliance Group can connect you with our network of experts who can help you explore the options for children’s life insurance. Reach out today – we’re here to help.