Life Insurance For Children

Life insurance for children, also known as juvenile life insurance, is a policy purchased by an adult to insure the life of a child. The adult, most often a parent, guardian or grandparent, owns the policy until the insured child reaches the age of majority. (The term “age of majority” is the point at which a minor is considered by law to be an adult.

Each state determines the age of majority for insurance policies.) Once a child reaches the age of majority in his or her state, ownership of the insurance policy is transferred to him or her. He or she can then continue to pay the premiums in order to keep the policy in force or choose to surrender the policy for the cash value if it exists.

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The Basics

In most cases, the beneficiary of life insurance for a child is the parent, guardian or the adult who purchased the policy. Should the child die while the policy is in force, the death benefit would be paid to the owner of the policy. However, once ownership of the policy is transferred to the child at the age of majority, he or she is free to name a beneficiary of his or her choosing. He or she can continue to name a parent or guardian, or choose to name his or her spouse or own child as the beneficiary. This is why life insurance for children is referred to as the gift that can last a lifetime. Provided the premiums are always paid when due, the policy can remain in force for decades.

The minimum age at which life insurance for children can be obtained differs among life insurance companies but is most often around 16 weeks. The maximum age also differs among companies and states, but is usually not after the age of 21.

Benefits of Life Insurance for Children

Life insurance purchased for children can provide valuable protection for life. A policy purchased by a parent or grandparent for a child today can still be in force several years from now. A permanent policy, one that allows for investment and the opportunity to accumulate cash value over time, can provide a much-needed cash-cushion later in the child’s life.

The cash portion of a permanent life insurance policy grows tax-deferred. A tax-deferred account usually grows much faster and larger than one that is taxed, as money is not deducted from the account in order to pay taxes. More money is left within the account to earn interest and compound over a number of years.

The cash value of the policy can be borrowed to pay college tuition, to purchase a home or to finance a business. Or, the value of the policy can be used as collateral for other types of loans. This type of investment can also help to provide for a comfortable retirement. Finally, the death benefit can be used to help protect that child’s children, should they be named as beneficiaries on the policy.

The premiums paid on life insurance for children are the lowest possible rates available. Children are the healthiest segment of the life insurance pool and the premiums paid on a juvenile life insurance policy are usually paid for the longest period of time. And, a policy purchased early in life will ensure insurability later in life, even later in childhood.

For example, childhood illnesses such as asthma may trigger higher premiums not only later in childhood but later in life as well. Once a policy for a child is issued, an insurance company cannot cancel the policy as long as the premiums are paid according to the contract. Some life insurance companies will also attach a rider to the policy that allows the owner of the policy, either the parent or guardian while the child is a minor or the insured if he or she has reached the age of majority, to purchase additional life insurance coverage at specific times regardless of his or her insurability at that time.

Types of Life Insurance Policies Available for Children

Life insurance for children can be purchased as term life insurance or as permanent insurance. Single premium term life insurance will most often cover a child up to the age of 21. The death benefit usually ranges between $2,500 and $15,000, but can vary among life insurance companies. Term life insurance for children contains the same drawback that term life insurance for adults does: Once the term is over, the policy is over. A term policy can, however, almost always be converted to a permanent whole life policy once the child turns 21 or the reaches the age of majority in his or her state.

The premiums on a converted permanent policy will always be higher than those of the original term policy, and also higher than they would have been if a permanent whole life policy had been purchased in the first place. For this reason, most purchasers of life insurance for children are advised to buy the largest policy they can comfortably afford. By doing this, the cost to the child, even when he or she reaches adulthood, will remain affordable.

When to Purchase Life Insurance for Children

As with all life insurance policies, life insurance for children should be purchased as early as possible. For parents, who may have other significant financial obligations once the child is born, this may mean waiting a few years so that the premiums will not deplete the cash necessary for other expenditures. For grandparents, aunts, uncles or other older, more established relatives, this may mean purchasing a policy within a month of the child’s birth.

Before purchasing a life insurance policy for a child, however, it is always wise to consult not only with the parents or guardian, but also with a tax advisor. While the earnings in a permanent policy will grow tax-deferred, the premium or premium will be considered as a financial gift to the child under state and federal tax law.

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