Covering Up

What to know about life insurance policies for kids

The pandemic has changed life dramatically. One idea that might be popping into your head that never did before? Buying life insurance for your kids. If that thought has grown into something you want to explore, here are some things you should know.

One Option

As Money notes, life insurance companies don’t offer term policies — ones with specific dates of coverage — to kids 18 years and under. That means you must buy what is known as a whole life insurance policy. The benefit of this policy is it does come with a savings portion known as the cash value. If you buy a whole life insurance policy for your kid, it would have a cash value that you could access once you’re finished with the coverage. You can also borrow against the policy, which can be helpful.

Small Return

The downside of that cash value is that it’s typically quite low. As one study of whole life insurance policies found, the average return of a 20-to-30 year whole life insurance is between 0-2 percent. That’s something to keep in mind if you’re using this policy as an investment piece. If you are looking for a better return, you’re better off opening a Roth IRA.

Better Value

Perhaps the smartest, most affordable way to get life insurance for your kids is to add them to your policy. You can do this by adding a “child rider” to your coverage. Many insurers offer riders for anywhere between $5 to $7 per thousand of coverage per year. One rider will cover all your kids.

Chris O'Shea

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