Insurance for kids: What every parent needs to know

As a parent, you probably already know that life insurance is one of the best ways to secure your child’s future if something happens to you. But did you know that you can also purchase an insurance policy on behalf of your kids?

Kids’ life insurance is an investment in your family’s financial security and a way to save for your child’s future. Buying a policy now ensures your child is covered into adulthood. Here’s what you need to know about children’s life insurance and why it might be a smart investment for your family.

Why consider life insurance for kids?

Like other types of insurance, life insurance for kids is a way to protect your family’s finances in case of an emergency or major life event. You can purchase a standalone policy or add your child to your life insurance policy (called a “rider”). 

Some people also purchase life insurance for kids as a long-term savings tactic. 

Here are a few reasons you might consider life insurance for your kids:

• Coverage in case of a loss: In the event of death, most life insurance policies cover some or all funeral costs and other expenses, removing some of the financial burden in a time of grief.

• Extends coverage into adulthood: Taking out a life insurance policy for your child now, can (but not always) make it easier and more affordable for them to extend that coverage into adulthood.

• Long-term savings: Many policies accumulate tax-deferred cash value over time. The policy holder can withdraw the cash value later in life (minus related taxes or other fees).

• Some offer guaranteed insurability: Some policies for kids guarantee their insurability as an adult. So, regardless of their health condition, your child can take out their own life insurance policy once they grow up. 

Types of life insurance policies for kids

The exact benefits of your child’s policy depend on the type of insurance you choose. Similar to adult life insurance, there are several different types of children’s life insurance policies. Here are a few of the most common:

Child life insurance riders

A child life insurance rider, or child rider, is an add-on to your insurance policy that provides coverage if your child passes away while the policy is active. These riders typically cover funeral costs and other expenses to relieve some of the burden for your family if the worst should happen. 

A child rider is similar to a spouse rider but typically provides lower coverage levels. You can usually add child riders to your current life insurance policy for as little as a few extra dollars per month, depending on your insurer. Once your child grows up, they might have the option to convert the rider into their own life insurance policy for a below-average monthly premium — again, this option depends on your insurer.

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However, keep in mind that this type of policy won’t cover health care costs or other emergency services in case of a medical emergency.

Child funeral or burial policies

A funeral or burial policy, sometimes known as final expense life insurance, is a narrower policy that covers funeral costs after a loss. They don’t come with the extended benefits of other types of life insurance. You might consider this type of insurance if your child has a severe medical condition or you want additional coverage in case of an unexpected loss.

Child term life insurance

Another type of child rider, term life insurance lasts for a given term — typically 10 years or more. These policies are usually more affordable than whole-life or universal life insurance but don’t offer the same benefits. For example, term life insurance policies don’t gain value over time and can’t be cashed out at the end of the term. They also terminate if the parent dies before the child. 

Depending on your specific policy and insurer, you may be able to use your child’s term life insurance policy to pay for health care and other emergency costs beyond funeral expenses. 

Term life insurance might be a good option if you want extensive coverage for your child but don’t want to purchase a permanent life insurance policy. Some insurers offer the option to convert your policy to whole-life or universal insurance once your term is up. 

Child whole life insurance

Whole-life insurance offers a fixed premium. That means you can lock in a low monthly premium for your child today that won’t increase as they get older or if they develop a health condition in the future. 

Whole life insurance for kids offers multiple benefits:

• Provides coverage throughout childhood and into adulthood

• Policies gain cash value over time

• Policy earnings aren’t taxed until you or your child withdraw them

Child universal life insurance

If you’re looking for more flexibility, consider a universal life insurance policy for your child. This type of policy is like a middle ground between term and whole life insurance. With universal insurance, you can adjust your policy terms and premium according to your needs. However, unlike term and whole life insurance, there is no guaranteed death benefit unless you purchase a separate rider. 

Consider a universal life policy if you want more flexibility in case of major life changes. These policies also gain cash value that can be withdrawn for other expenses during your child’s lifetime, typically with a 10%-40% fee, depending on your insurer. 

How to choose the right life insurance policy for your child

There is no such thing as the “best life insurance policy for kids.” The right choice depends on your family’s needs, long-term goals, and budget. Here are a few factors to consider when comparing life insurance policies:

• Your priorities: What is most important to you in planning for your family’s future? Are you more concerned with avoiding emergency expenses or saving for other costs — or both? You can get different levels of coverage and benefits, so choose the policy that best matches your priorities.

• Your child’s health: Some policies are better for kids with severe health conditions. The right insurance can provide some financial peace of mind when facing a terminal or life-threatening diagnosis. 

• Your budget: How much can you spend on your child’s insurance right now? If you’re on a tight budget, a child life insurance rider may be a more affordable option. Some insurers allow you to convert the rider to an independent policy for your child later. 

• Your long-term savings goals: If you want to save for your child’s future, consider a whole-life or universal life insurance policy. Both accumulate cash value over time, which your child can withdraw for their education or other costs in the future. However, you may get better returns from other types of investments; purchasing these types of insurance means tying up money that could be earning you more elsewhere. 

• Your child’s age: You can buy a life insurance policy for your child at any age. The younger your child is, the more time the policy will have to gain cash value if you opt for whole-life or universal insurance. For a teen, you may want to consider a policy that guarantees their insurability in adulthood.

Other financial options for securing your child’s future

Life insurance for kids can be a valuable investment in your family’s financial future. However, it’s important to understand that children’s life insurance is not:

• Health insurance coverage

• An investment account

• A savings account

Put simply, the main reason you would buy a life insurance policy for your child is to make sure your family is covered in the case of that child’s death. A life insurance policy does come with certain financial benefits — but it isn’t the only way to secure your child’s financial future. There are other ways to spend your money if long-term savings are your top priority.

Here are some other options to consider if you want to set your child up for financial success:

College savings accounts

Opening a college savings account for your child is a great way to make sure they can afford their future education without going into debt. There are several different types of college savings accounts, including:

• 529 plans

• Roth IRAs

• High-yield savings accounts

The sooner you start saving for your child’s education, the more options they’ll have when graduation day comes.

Family money apps with saving incentives

Kickstart their money management skills early with an all-in-one money app like Greenlight. You can automate allowance for chores, set store-level spending controls to teach budgeting, and help them build wealth through savings rewards¹ and cash back² on purchases. 

Investment accounts for kids

If you want your child to be able to use their savings for expenses beyond education, consider opening an investment account for them. A custodial account is a type of brokerage account opened in a minor’s name by a parent or guardian. You oversee the account and help grow savings as your child grows up. 

You can do all the above in one place with Greenlight Infinity, where kids and teens can practice investing with games like Level Up™. Then they can use the Greenlight app to research and propose trades — with parent approval.

Financial education

It’s never too early to start your child’s financial education. For example, if you need to pay down debt, you can involve your child, explaining how loans work and the steps you’re taking to repay them on time. Teach them the basics of saving and money management so they know how to make smart financial decisions as an adult. 

One of the best ways to invest in your child’s financial education is with a teen banking app. The Greenlight debit card and safety app teaches kids to manage money while keeping parents in control. They can learn how to invest, grow their savings, and even set up direct deposit once they start their first job. Try Greenlight Infinity today.

Disclaimer: Greenlight is a financial technology company, not a bank. The Greenlight app facilitates banking services through Community Federal Savings Bank (CFSB), Member FDIC.

FAQs

Should I add my child to my life insurance?

Consider the pros and cons to determine if child life insurance is right for your family. On the plus side, buying insurance for kids or adding a child rider to your life insurance can:

• Help cover funeral or related expenses in the event of death. 

• Secure a lower rate that may make it easier for your child to have affordable coverage later in life. 

• Provide tax-deferred savings on the cash value of the policy.

Cons of child life insurance include:

• Lower coverage amounts, typically under $50,000.

• High potential for unnecessary expenditure given the lower death rate for young people.

• Lower return on investment; interest rates are typically lower on the cash values for these policies than many other investment options.

Is it possible to buy a life insurance policy for an infant?

Many insurers offer life insurance policies for kids as young as two weeks.

Which life insurance is best for a child?

The best life insurance for your child depends on your priorities and budget. You can consider a whole life policy specific to your child or a rider added to your policy. Weigh the pros and cons (above) against your unique needs and situation. 

¹Greenlight Core families can earn 2% per annum, Greenlight Max families can earn 3% per annum, and Greenlight Infinity families can earn 5% per annum on an average daily savings balance of up to $5,000 per family. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.

²Greenlight Max and Infinity families can earn 1% cash back on spending monthly. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.