6 Reasons to Buy Life Insurance for Your Children

Sean McGinn is an assistant director of Product Positioning in the Risk Products department at Northwestern Mutual. 

It can be easy to shun the idea of getting life insurance on a child. After all, no parent wants to imagine a scenario in which they might collect a death benefit on their child’s life.

But permanent life insurance can be an important financial planning tool—one that is easiest to get when a person is young and healthy. Because of that, getting life insurance for your child can offer a range of long-term benefits that may surprise you.

Here are six reasons to buy life insurance for your children.

Reasons to buy life Insurance for your kids

1. It’s permanent

Most life insurance policies for children are whole life insurance, which is a subset of permanent life insurance.

One of the greatest benefits of whole life insurance is that, as long as you continue to pay your monthly premiums on time, the policy covers you for life. This means that when your children become adults (and will likely want life insurance), they will already have a policy they can continue throughout their lives—and it will be affordably priced.

2. It’s affordable

When you get a whole life insurance policy for your child, the monthly bill that you pay will depend on several factors, including the size of the policy as well as your child’s age and state of health at the time that the policy is purchased.

For most families, the cost is relatively inexpensive because insurance pricing is based on age and health. This means that the coverage you buy for your child now should be very affordable, and easy to work into your family’s budget.

And because the policy is a whole life policy, the premiums won’t ever change—unless you, or they, choose to purchase more insurance in the future. When your child takes over the policy as a young adult, they can enjoy the same low premiums that you locked in for them when they were young.

3. It will lock in their insurability

Your ability to get life insurance, and the cost of that insurance, is called insurability. Insurability is based, in part, on your health at the time that you apply for coverage. Diabetes, heart disease, a history of cancer, or any number of health issues can make it difficult to qualify for life insurance. Those who are able to get a policy despite these health issues will likely pay more for the same amount of coverage than someone who does not.

Something to keep in mind is that even if your child is in perfect health, if he or she participates in a risky hobby—such as flying personal aircraft, mountain/rock climbing or motocross—that could also impact their insurability.

But once you have an insurance policy on a child, the coverage will continue no matter what happens with their health. The insurance company can’t simply cancel their policy due to health changes. This is why purchasing a whole life policy for your child can be an extremely powerful tool: It protects their insurability regardless of any health conditions they may develop as they age.

As an added bonus, you can often purchase an additional benefit that allows your child to purchase more insurance at set times in the future, at rates based on their health when their policy was initially purchased. This means that as they get older, they can increase their coverage to account for changes in their life situation— such as getting married, purchasing a home, having children of their own—without worrying about how their health might affect their premiums.

4. It builds cash value

Another benefit of whole life insurance is that it will build cash value over time as you pay your premiums. Cash value is essentially a pool of money held within a whole life policy, which can be accessed at any time and for any reason—unlike the death benefit, which is only accessible to beneficiaries once the policyholder dies. This money grows in a tax-advantaged way, unaffected by how the markets perform.

In the future, your child will be able to access the cash value of their policy if they ever have a reason to do so. It can, for example, be helpful in covering significant emergencies where the money in an emergency fund isn’t enough. It can even be used to pay for college, or a wedding, the down payment on a home—anything your child values.¹

5. It can provide peace of mind

Of course, no parent wants to even consider the possibility of collecting the death benefit on a child. But if that were ever necessary, the death benefit can help ease some stress during a devastating time.

It can be used to cover medical expenses, funeral bills, and even counseling for your family. If you and your spouse need to take time off from work to mourn and process the event, the death benefit can help with that as well.

6. It can be a helpful financial planning tool for your child

Due to its permanent nature, a whole life insurance policy taken out for your child can become a cornerstone of their financial plan—one that they carry throughout their lives and career all the way to retirement. As such, it has the potential to really stabilize their financial lives, potentially making it easier to save for retirement, invest for other financial goals, and plan their estates.

A financial planner can help

If you are considering the idea of purchasing a life insurance policy for your offspring, your financial advisor can help you figure out how to incorporate it into your planning so that your children can get the most benefit—even when they may have families of their own.

¹ It’s important to keep in mind by taking cash value out of the policy, there could be a reduction in the death benefit, impact on future dividends, or possible taxable gains.