Youve probably seen those Gerber Life Grow-Up Plan commercials.
It builds cash value, and can provide them with life insurance when they become an adult.
But does buying life insurance for kids ever make sense?
Need a refresher? Here’show life insurance works, from premiums to payouts.
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What Is Life Insurance for Children?
Often purchased by parents, guardians or grandparents, child life insurance provides coverage for minors.
Life insurance coverage can remain in place so long as the adult child continues making premium payments.
How Does Life Insurance for Kids Work?
Childrens life insurance policies are usually whole life insurance policies, a pop in of permanent life insurance.
A whole life insurance policy combines a death benefit with a cash value component that grows over time.
How Is It Different From Adult Life Insurance?
Adult life insurance policies are typically owned and paid for by the policyholder.
However, childrens life insurance policies are owned and paid for by parents or guardians.
Parents are usually the beneficiaries as well.
Another difference is that childrens life insurance policies usually dont require medical underwriting to qualify for coverage.
Finally, the death benefit tends to be smaller for child life insurance policies.
How Much Does Childrens Life Insurance Cost?
However, it only provides up to $5,000 in coverage.
A quote from Mutual of Omaha priced a $20,000 policy for a 1-year-old at $8.22 a month.
The price increased to $19 a month for $50,000 of coverage.
The same amount of coverage for a 10-year-old costs $26.75.
How Do You Apply for Child Life Insurance?
Parents, grandparents or legal guardians can purchase child life insurance policies.
Buying life insurance for a child is a straightforward process.
Here are the general steps to obtain life insurance for a child.
In many cases, the premiums paid into the policy will far exceed any potential benefits received.
This option is usually more cost-effective.
When it comes to childrens term life insurance riders, there is usually little to no underwriting involved.
This means your child doesnt have to undergo a medical examination to get covered.
However, insurers may ask a few health-related questions.
Children with certain pre-existing conditions may not qualify for coverage.
Most 529 plans offer a range of investment options, from stock and mutual funds to pre-built portfolios.
The growth of the account value depends on the performance of the chosen investments.
Contributions to 529 plans grow tax-free.
Withdrawals for qualified educational expenses are also tax-free.
Some states also offer tax deductions or credits for contributions to their 529 plans.
Funds can be used for any purpose that benefits the child.
Its not limited to education expenses only.
Custodial accounts can be opened at banks, credit unions, brokerage firms and online investment platforms.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer at The Penny Hoarder.
She focuses on retirement, investing, life insurance and taxes.
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