Life Insurance on a Child

The household question: what to protect, and in what order

• Immediate costs at a moment nobody plans forA funeral and the practical costs around it, and often time away from work for both parents. These are real and they arrive quickly. What they are not is an income loss, which is why the amounts involved are small.
• A small permanent policy the child eventually keepsSome families want to hand over a paid-up or long-running policy in adulthood. That is a coherent motive, and it should be weighed as what it is: a modest gift, bought with money that could go elsewhere.
• A conversion or purchase optionCertain riders let a child convert to permanent coverage, or let an insured buy more later, without new health evidence. This is the reason most often given and the one most often overstated — the section below sets out what is actually guaranteed.
• A family history that worries a parentSome parents want coverage in place before a condition is diagnosed. Whether that concern is well-founded, and whether coverage would actually respond as hoped, is a conversation for a licensed insurance professional who can look at the specifics.
• A grandparent who wants to do somethingCommon, and generally well-meant. It comes with consent requirements, and it is worth the whole family knowing about it, since insurers check for coverage already in force.

• A children's riderAttached to a parent's policy, typically level term coverage on the children at a single premium rate, and per NY DFS often able to take in newborns and adopted children without the premium changing. It is inexpensive because it is small and temporary.
• A standalone juvenile policyA contract of its own on the child's life, owned by an adult. Usually permanent, because the reason for buying one is normally that it is meant to last, which is also why it costs more per dollar of coverage than a rider.
• What ends, and whenA rider terminates — at a stated age, or on an event described in the contract. A standalone policy continues as long as it is paid for. This is the practical difference that matters most fifteen years on.
• What it is tied toA rider lives on the parent's policy and its fate is bound up with it. A separate policy stands on its own, which is either an advantage or an extra thing to keep track of, depending on your view.
• What it costs to addAdding a rider to a policy being bought anyway is usually the least expensive way to hold small coverage on children. That does not make it necessary — it makes it cheap, which is a different sentence.

• It comes from a rider, not from owning a policyBuying a policy on a child does not by itself create a right to buy more later. Whatever right exists is in a named rider, and a contract that does not include one does not include it.
• The amount is stated in advanceThese provisions convert or add a defined amount, not an open-ended one. A guarantee to buy a modest amount later is worth having and is not a coverage plan.
• The timing is definedOptions open at specified intervals, or before a rider terminates. Miss the window and it is gone; there is generally no catching up later.
• The price is not frozenWhat is guaranteed is the ability to buy without new health evidence. NY DFS notes premiums on a guaranteed insurability rider are “based on your attained age” — so the coverage is available, at the cost of coverage at that age.
• Availability varies by contract and by stateNo page can tell you whether a particular policy contains any of this. The rider list, the wording and the limits are in the contract and the outline of coverage, and they are worth asking for before anything is signed.

• The insurer's own maximumCompanies set a ceiling on child death benefits. Washington's regulator notes an insurer may refuse an application if the child's current policy, or the coverage applied for, exceeds the company's maximum for children.
• State law, in some statesNew York is a worked example rather than a national rule: under N.Y. Insurance Law § 3207(b), coverage on a minor over four years and six months is limited to the greater of $25,000 or 50% of the life insurance in force on the applicant, and for a younger child the greater of $25,000 or 25%. Other states handle this differently or not at all — check your own.
• A proportionality reviewWashington describes insurers reviewing an application to make sure the benefit is proportional to coverage issued on the child's siblings and immediate family members. Insuring one child heavily while the adults are lightly covered is the pattern this is looking for.
• A check against existing coverageFor applications of $50,000 or less without underwriting requirements, Washington states the company must check a national database for active insurance to find out whether other policies or applications already exist on the child.
• What that adds up toSmall amounts, checked against the rest of the family's coverage. The system is built on the view that coverage on a child should be modest and consistent, and it is worth understanding as a constraint rather than an obstacle.

• The ownerThe adult who applied, pays the premiums and controls the contract — changing the beneficiary, surrendering it, or eventually transferring it. Usually a parent; sometimes a grandparent who obtained consent.
• The insuredThe child. Whose life the contract is written on, and who has no control over it while a minor.
• The beneficiaryWhoever the owner names to receive the death benefit — typically the parents. Worth reviewing after any change in family circumstances, because a designation made once tends to stay made.
• Transferring it laterMany families intend to hand a standalone policy to the child in adulthood. Whether and how ownership can be transferred is set out in the contract, and the consequences of a transfer are worth asking a professional about rather than assuming.
• When more than one adult is involvedIf a grandparent owns a policy on a child, the parents are not automatically the owner, the beneficiary or the point of contact. Everyone knowing what exists and who holds it is not a formality.

How whole life works, and how to read an illustration

• The adults are not adequately covered yetThis is the big one. A household's financial exposure sits with the people it depends on. Money spent insuring a child while a parent is uninsured is money spent on the smaller problem.
• It is not an income-replacement needThe financial consequence of a child's death is real but bounded, and typically not the loss of household income. The coverage amounts reflect that, and so should expectations of what a policy does.
• The savings case is weak on its own termsAs a way to accumulate money, a small permanent policy on a child is a life insurance contract first. Vehicles built for saving generally do that job better, and comparing them side by side is not difficult.
• The insurability argument may be worth less than it soundsMost people remain insurable. The guarantee is bounded in amount, timing and duration. It has value — the question is whether that value exceeds what the same premium does elsewhere.
• The premium is small but not zeroA modest recurring cost over a long period is still a decision. It is worth making deliberately rather than because it was added at the end of another conversation.
• Coverage may already existSome employer plans include small dependent coverage. Checking what is already in force is free, and occasionally it answers the whole question.

• Insuring the child before insuring the earnersThe most consequential ordering error on this page. The budget is finite and the exposures are not the same size.
• Treating it as a college fundIt is a life insurance policy with a cash value, not a savings plan with a death benefit. Bought for the wrong reason, it usually disappoints on that reason.
• Assuming future insurability is automaticIt comes from a named rider with stated amounts, intervals and an end. A policy without that rider does not provide it.
• Assuming a rider lasts indefinitelyChildren's riders terminate. What can be done before they do — converting, in the case of a rider with a conversion provision — is worth knowing years ahead of the deadline.
• Applying for more than will be issuedCompany maximums, state limits, sibling proportionality and a database check all sit between an application and a policy. A large request on one child is likely to be questioned.
• Buying without the family knowingConsent requirements aside, coverage bought by one relative without the others knowing produces confusion later, and insurers check for coverage already in force in any case.
• Never re-reading itPolicies bought on small children are, almost by definition, forgotten for a decade. Whose name it is in, who the beneficiary is, and what options are still open are worth a look every few years.

Why insurers ask what they ask