Children’s Whole life insurance is a type of permanent life insurance coverage designed for children 14 days old to age 17. Provide the gift of lifelong protection for your children and grandchildren through premiums that are guaranteed to never increase.
Children’s Whole life coverage may be right if you:
- Want to lock in low childhood rates that will never increase
- Want to guarantee coverage throughout adulthood regardless of future health or occupation
- Want to invest in a policy that provides cash value, which will grow along with your child
- Want to provide the opportunity to add more coverage in the future
Growth of Life Insurance for Children
- Percentage of Parents Buying Life Insurance for Children: According to a study by Insurance News, approximately 8-10% of parents in the U.S. purchase life insurance policies for their children. While the numbers are relatively low, it highlights that many parents see the long-term benefits of securing financial protection and growth for their children.
Cash Value Growth
- Annual Growth Rate of Cash Value: Whole life insurance policies typically accumulate cash value over time. While growth varies based on the specific policy, a general estimate for the annual growth rate of the cash value can range from 3% to 5% on average. However, some policies with dividends may see higher growth over time.
- Cash Value Accumulation: The cash value of a child’s whole life policy can grow to significant amounts. For example, over 20 years, a child’s policy could accumulate tens of thousands of dollars in cash value, depending on the premium amount and the policy’s terms.
Cost of Premiums for Children’s Policies
- Average Premiums: The cost of premiums for children’s whole life insurance is generally lower than for adults. For instance, a typical monthly premium for a child’s whole life insurance policy (for a $25,000 to $50,000 death benefit) can range between $20 to $60 depending on the insurance company, the age of the child, and other factors.
- Affordable Coverage: A child insured at a young age (e.g., 1-3 years old) often locks in a low premium rate, which stays level for the life of the policy.
Impact of Dividends
- Dividends Paid by Insurers: Some whole life insurance policies from mutual insurance companies may pay dividends. According to data from the National Association of Insurance Commissioners (NAIC), about 85% of mutual life insurance companies pay dividends on whole life policies. These dividends can range between 1% and 8% of the policy’s cash value, though they are not guaranteed.
- Use of Dividends: Policyholders often use dividends in various ways, including reducing premiums, purchasing additional coverage, or receiving them as cash. This can significantly enhance the overall value of a children’s whole life policy over time.
Guaranteed Insurability Rider
- Utilization of Riders: The guaranteed insurability rider (available with some children’s whole life policies) allows the child to purchase additional coverage in the future without undergoing medical exams or proving insurability. According to LIMRA (Life Insurance Marketing and Research Association), around 35-45% of policyholders take advantage of the rider later in life to increase coverage during adulthood, especially if health conditions change.
Policyholder Longevity
- Lifespan of Whole Life Policies: Whole life insurance policies are designed to last a lifetime, and the average policyholder keeps their whole life insurance policy for over 20 years, often converting it into a valuable financial asset over time.
Policyholder Demographics
- Parents Buying Policies for Children: According to a report by The National Association of Insurance Commissioners, around 60% of parents who buy life insurance for their children do so for long-term financial security, such as ensuring that their child can access funds for education, a home, or other future milestones.
- Parents’ Belief in Financial Protection: About 70% of parents who purchase life insurance for their children view the policy as an investment for the child’s future financial well-being, including access to the cash value later in life.
Underwriting and Health
- Locking in Coverage at a Young Age: For parents buying whole life policies for children, 95% believe that it is easier and more cost-effective to insure a child when they are young and healthy, especially as rates remain locked in and the child will never have to requalify for coverage later, even if health conditions change.
Lifelong Financial Protection
- Guaranteed Coverage for Life: A children’s whole life insurance policy ensures that the child is covered for their entire life, no matter how their health might change over time. This means that even if they develop health problems later in life, the policy will not be canceled or have its premiums increased due to those changes.
- Peace of Mind: Parents can feel secure knowing that the child’s future is financially protected, with the policy providing a death benefit that would help cover funeral costs or other financial burdens if the worst happens.
Cash Value Accumulation
- Building a Financial Asset: Whole life policies accumulate cash value over time, which grows on a tax-deferred basis. This can be an important financial asset for the child when they grow older, offering them options like:
- Paying for college tuition
- Buying a car or home
- Starting a business
- The earlier the policy is purchased, the more time it has to grow, and the more substantial the cash value could be by the time the child reaches adulthood.
Affordability
- Lower Premiums When Young: One of the main advantages of buying life insurance for a child is that premiums are much lower compared to purchasing a policy for an adult. By securing coverage early, parents lock in a low premium for their child’s entire life.
- Fixed Premiums: Premiums for whole life policies are typically fixed, meaning that they won’t increase as the child ages or experiences changes in their health. This makes it easier for parents to budget over the long term.
Financial Security for the Family
- A Safety Net in Case of Tragedy: While the death of a child is an unimaginable tragedy, the financial burden can also be overwhelming. A children’s whole life insurance policy can provide immediate financial relief to cover funeral costs, medical bills, or other unexpected expenses during a time of grieving.
Guaranteed Insurability for the Future
- No Need for Future Medical Exams: A whole life policy for a child often includes a guaranteed insurability rider, meaning that as the child grows, they will have the option to purchase more life insurance later in life without having to undergo medical exams or prove insurability. This is particularly important if they develop health issues, as it ensures they can still obtain insurance in the future at a favorable rate.
- Easier to Obtain Coverage: By insuring the child while they are young and healthy, parents can ensure that their child will always have access to affordable life insurance later in life, even if their health changes.
Building a Legacy
- Passing Down Financial Security: Some parents use children’s whole life policies as a way to pass down wealth. The policy can help ensure that the child has financial resources to rely on throughout their life, whether it’s for personal growth or handling unexpected events.
- Estate Planning Tool: It can also play a role in family estate planning, helping to provide liquidity or support for future generations. The policy’s death benefit can be structured to help the family financially if something happens to the parent, as the policy may be owned by the parents but the death benefit would go to the child.
Educational and Financial Benefits for the Child
- Financial Literacy: Having a whole life insurance policy can introduce children to the concept of long-term financial planning. As they grow older, parents can educate them on how the policy works, how cash value grows, and how to make smart financial decisions with their assets.
- Cash Value Loans: As the child matures, they can take out loans against the accumulated cash value (though the loan will need to be repaid with interest). This can provide financial flexibility when they need it most, like for college tuition or other major life expenses.
Flexibility in Financial Planning
- Customizable Options: Many children’s whole life policies offer flexible options, such as the ability to add riders that might enhance the policy, like a waiver of premium rider (if the parents become disabled), or a return of premium rider (which refunds premiums if the child outlives the policy). This flexibility allows families to tailor the policy to their needs.
Security for Parents’ Financial Plans
- Help with Estate or Final Expenses: If a child passes away, the death benefit from the whole life policy can ease the financial burden on the parents, helping to cover not just the emotional grief but also practical costs that come with losing a child.
- Long-Term Planning for Parents: By securing a life insurance policy for their child, parents are also planning for their child’s future financial stability, in turn securing their own financial peace of mind.
A Unique Gift for the Child
- Creating a Financial Legacy: Many people view purchasing a whole life policy for their child as a unique and thoughtful gift—one that gives a lasting financial foundation. This early investment provides both an emotional and financial legacy that can help the child succeed as they grow older.
