Life Insurance for Children: Is It a Good Idea?

17 November 2025

When you think of life insurance, you probably picture adults—parents securing their family’s future or breadwinners protecting their loved ones. But have you ever considered life insurance for children? Some parents and grandparents opt for it, while others question if it’s really necessary.

Is purchasing life insurance for your child a smart financial move, or is it just another way insurance companies take your money? Let’s dive deep into the pros, cons, and factors to consider before making a decision.

What Is Life Insurance for Children?

Children’s life insurance is a policy designed specifically for minors. Like standard life insurance, it provides financial protection in case the insured child passes away. These policies are typically whole life insurance, meaning they stay in effect as long as premiums are paid and can accumulate cash value over time.

Parents or guardians usually purchase these policies, becoming the policyholder until the child reaches adulthood. At that point, ownership of the policy can be transferred, allowing the child to continue coverage.

The Benefits of Life Insurance for Children

While life insurance for kids isn’t a necessity, some families choose to buy it for several reasons. Let’s break down the potential benefits.

1. Guaranteed Insurability

One of the primary advantages of a child life insurance policy is that it locks in coverage while the child is young and healthy. If they develop a medical condition later in life that would make it difficult or expensive to get insurance, they’ll still have this policy in place.

For example, if your child is later diagnosed with diabetes or a heart condition, they might struggle to qualify for life insurance as an adult. Having a policy from childhood ensures coverage regardless of future health issues.

2. Cash Value Accumulation

Unlike term life insurance, whole life insurance policies build cash value over time. A portion of each premium payment goes into a savings component that grows at a guaranteed rate.

This cash value can be borrowed against in the future for expenses like college tuition, a down payment on a home, or emergency costs. While it’s not the most efficient savings vehicle, it does provide a financial cushion.

3. Funeral and Burial Costs Coverage

No one likes to think about losing a child—it’s an unimaginable tragedy. However, funeral costs can be a significant financial burden, ranging from $7,000 to $15,000 or more. Having a life insurance policy can ease the financial strain during an already devastating time.

4. Affordable Premiums

Life insurance premiums are based on age and health, making coverage for young children incredibly affordable. Locking in low rates early ensures a cost-effective policy that follows them into adulthood.

5. Future Financial Security

By purchasing a policy now, you’re giving your child a financial asset they can carry into adulthood. When they take over the policy, they can continue the coverage or even use the cash value for personal financial goals.

The Downsides of Life Insurance for Children

Despite the potential benefits, life insurance for children isn’t always the best financial decision. Here’s why some experts advise against it.

1. Low Financial Justification

Life insurance is typically meant to replace lost income when a provider passes away. Since children don’t contribute financially to the household, there’s little need for life insurance in traditional terms.

Instead of paying premiums, that money could be put into a higher-yield investment like a 529 college savings plan or a custodial Roth IRA, which would likely generate better returns over time.

2. Cash Value Growth Is Slow

While whole life insurance builds cash value, the growth rate is relatively slow compared to other investment vehicles. Investments like index funds, mutual funds, or even a high-yield savings account could provide better financial benefits in the long run.

3. Better Alternatives for Savings

If the goal is to set your child up for financial success, other options may be more effective. Consider:
- 529 College Savings Plan – Tax-advantaged savings for education expenses.
- Custodial Investment Accounts – Allows parents to invest in stocks or mutual funds on their child’s behalf.
- High-Yield Savings Accounts – Useful for accumulating funds for future needs.

These options allow for more flexible financial growth than a rigid whole life insurance policy.

4. Premiums Might Become a Long-Term Burden

While premiums are low in childhood, they still require consistent payments. If your financial situation changes, keeping up with premiums might become a strain. Plus, if you stop paying, the policy may lapse, making all previous payments a sunk cost.

5. Limited Coverage Amount

Most child life insurance policies have relatively low coverage limits—typically around $50,000 or less. If the goal is to provide substantial financial security, other strategies might be more effective.

When Does It Make Sense to Get Life Insurance for a Child?

For most families, life insurance for children isn’t a necessity. However, there are specific circumstances where it might be worth considering:

- Family History of Health Issues: If your family has a strong history of medical conditions that could make securing life insurance difficult later, locking in coverage now can be beneficial.
- Desire for a Forced Savings Plan: If you're looking for a way to build a small nest egg for your child, a life insurance policy with cash value growth could serve as a savings tool, though not the most efficient one.
- Peace of Mind: Some parents simply feel better knowing they have a policy in place for any unforeseen circumstances.

Ultimately, whether you should buy life insurance for your child depends on your financial goals and comfort level.

Alternatives to Child Life Insurance

If your primary concern is securing your child’s financial future, here are better alternatives:

1. Invest in a 529 Plan

A 529 savings plan is specifically designed for educational expenses, and contributions grow tax-free. If college is a consideration, this is a much more effective way to save for tuition and related costs.

2. Open a Custodial Roth IRA

If your child has earned income, a Custodial Roth IRA can be an excellent long-term investment. Contributions grow tax-free, and compounding interest over the years can turn even small investments into sizable savings.

3. Buy a Term Life Insurance Policy for Yourself

If your primary goal is protecting your family financially, investing in a term life insurance policy for yourself is often a better approach. It ensures your family is covered in case anything happens to you.

4. Start a High-Yield Savings Account

Putting money into a high-yield savings account in your child’s name can provide financial security without the complexities of an insurance policy.

Final Verdict: Is Life Insurance for Children Worth It?

For most families, life insurance for children isn’t a necessity. While it does offer guaranteed insurability and a cash value component, the financial benefits are relatively limited. If your goal is financial security for your child, better alternatives like a 529 plan or a custodial investment account may be more effective.

However, if you have a family history of medical conditions, want peace of mind, or value the forced savings aspect, a policy might make sense. Just be sure to weigh the costs versus the benefits before making a decision.

At the end of the day, financial planning is about making informed choices with your family’s best interests in mind.