Purchase a stand-alone policyMost insurers can offer you a variety of different life insurance plans for children with very reasonable rates. Often you can buy a policy with a face amount as low as $10,000 for just a few dollars a month, depending on the child's sex, age, and policy term. Underwriting on a stand-alone policy for a child typically includes health questions and may not include blood work or urine samples.
An employee benefit offered by your employerWe all know the cost of raising children. Employers sometimes offer small life insurance policies for dependents of employees for little or no cost. However, the face amounts on these types of policy offerings are typically low (often between $5,000 and $10,000, depending on what your employer offers). Coverage with these lower limits may only be enough to cover final expenses and little else, but if it's offered at no cost to you as a benefit, it's worth it. However, keep in mind that if you were to leave your job, the insurance coverage will likely cease. Generally with this coverage, there is no underwriting in which to qualify and issue a policy.
Add a child life insurance rider
With a children's life insurance rider, you can provide coverage for every child in your family for the same price (if your policy offers this option). So if you have two or more children under the age of 18, this rider can be a cost effective way to purchase coverage for all of your children with one low premium. The downside is that child riders don't always offer a lot of coverage (most typically offer an average face value between $10,000 and $25,000 per child). However, they sometimes include the option to buy additional coverage over and above this amount at some point in the future.
The rider will expire when a child reaches adulthood (age determined by the insurance company) and when it does, you'll need to purchase an individual life insurance policy if you want to continue coverage. Underwriting generally includes a few broad health questions and blood work or urine samples are typically not required.*
Policy types and options to consider
Before deciding on a life insurance policy for your child, take the time to learn about the different kinds of policies and options that are available. Here are some options you may want to consider.
Term life insurance
Many life insurers offer term life insurance policy for children. On the pro side, term life insurance allows you to buy a lot of insurance for comparatively little premium. So, if you buy term life insurance for children when they're young and in good health, the premiums are typically very low. It may also provide a fixed premium (your payments won't increase during the term chosen) and coverage that is guaranteed as long as premium payments are made.
When considering a term policy for your child, you need to understand that term life insurance provides coverage for a limited period of time only. For example, when your child turns age 20, that 20-year term policy that you purchased when he was born will expire. This means if he wants to continue to have life insurance coverage, he'll need to buy a new policy based on his current age and health status. Some term policies allow you to convert all or a portion of your child's policy into a permanent policy without proof of insurability. While a guaranteed insurability rider can allow future purchases of insurance coverage without proof of insurability. However, these policy riders have very specific requirements and often must be purchased at the time the policy is written.
Permanent life insurance
An alternative to term is a permanent life insurance policy, such as a whole life or universal life. These policies are intended to last your child's entire life and can lock you into a lower premium rate while they are young and healthy. A permanent policy ensures that your child has coverage now, as well as in the future - even if they become ill and uninsurable. So if you have a family history of a certain medical problems, or other reasons to believe your child will find difficulty in securing a life insurance policy later in life, you might want to purchase while they are young.
Permanent life insurance can also build tax-deferred cash value. This cash value can be accessed for your child in the future for such things as college tuition or the down payment on a home. And paying premiums regularly can also be a disciplined, simple way to contribute to your child's savings. Whole life provides a fixed premium with a benefit that won't expire (as long as required premiums are made). Whole and universal life policies also accumulate cash value over time.
A qualified insurance professional can help answer any questions you may have and select what's best for you and your child.
* Not all policy types or insurance carriers offer this optional rider and underwriting requirements to qualify for this coverage may vary.