Life insurance for children: 4 lesser-known benefits
Life insurance policies for children are more than a death benefit for the unimaginable. They're also a powerful financial tool. Read on to learn how buying life insurance for your child can set them up for success.
Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York
Video Transcript: 4 reasons to take out life insurance on your child
- Video duration: 2 minutes 35 seconds [02:35]
- Transcript date: Feb. 8, 2024
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When people hear “life insurance for children,” they usually think of a death benefit in case the unimaginable happens. But a life insurance policy for your child can be so much more. In fact, it can help set up your child up for financial success.
Here are four reasons you should consider taking out a life insurance policy on your child.
1: It can help your child get insurance later in life.
In general, it's easier to get life insurance for a child than it is for an adult. Most companies don't require a medical exam. And they usually issue the policy right away unless the child has a major health concern.
When your child grows older and is ready to take over their policy, they won't need to prove their insurability again, regardless of their health. Sometimes they can even add more coverage without going through underwriting.
2: It can give your child access to cash.
Life insurance policies taken out on children are usually permanent policies that come with a cash value savings plan.
This means that once the child or grandchild is old enough, they'll have two options. They can choose to keep the policy and have coverage for the rest of their life. Or they can cancel it and take the cash balance.
They can use that cash to pay for college expenses, a down payment on a house, or whatever they'd like.
Plus, even if they keep the policy, they can take out a loan from the cash balance at a favorable rate.
3: It can help teach your child how to manage money.
A life insurance plan also gives parents the opportunity to teach their child financial preparedness.
As your child grows, you can start to teach them about their policy and explain its benefits. You can talk to them about the importance of insurance and explain how cash value works.
When it comes time for your child to start their own family, they'll have a blueprint to follow.
4: It can give your child life insurance without the monthly payments.
A “paid-up life insurance policy” is a benefit of some permanent life contracts. It essentially allows the policy to be paid in full.
If a parent or grandparent wants to gift their child or grandchild a life insurance policy, they can pay higher premiums for a certain amount of time to pay the policy off before the child comes of age.
This gives the child a strong financial start as they enter adulthood. They'll have life insurance but won't be strapped with the payments.
Ready to give your child or grandchild a financial head start? Schedule a call with a USAA Life Insurance specialist today.
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Few of us like to think about life insurance coverage — and especially life insurance for kids. But that's because there's a lack of clarity about its purpose.
"There's a natural stigma when it comes to talking about life insurance for kids," explains USAA Advice Manager Matt Lyon. "But it's more about the living benefits a child can use for themselves in the future."
As children grow into adulthood, the right life policy can deliver a financial boost. Read on to learn how a child's life insurance policy is a useful financial planning tool.
1. Future insurability
When kids are little, it's hard to imagine them applying for life insurance when they become adults. But they will need to. And if they already have a life insurance policy, things will be much easier when that time comes.
"We've seen that a lot can happen in a child's medical history. If they get coverage at a young age, they've at least locked in some protection for adulthood," says Lyon.
In general, it's easier to get life insurance for a child than it is for an adult. For one, most companies forgo the need for medical exams. Also, they usually issue the policy right away unless the child has a major health concern.
When children grow older and are ready to take over their policy, they won't need to prove insurability, regardless of health. And depending on the policy, they can also add more coverage without underwriting.
Health and age are the major factors on how much life insurance can cost. Getting a policy for your child allows you to take those variables out of the future equation.
2. Access to cash value
When adults buy life insurance, they usually have a choice: "term" or "permanent."
Term policies provide coverage for a set duration and aren't common for children. Whereas permanent policies provide the child or grandchild an opportunity for lifetime coverage and cash value.
"Parents and grandparents like how building cash value over time can be a living benefit for a child's future," says Lyon. "Which again, goes back to the idea that the policy becomes a gift when the child reaches adulthood."
From there, if they decide to cancel the policy, the cash goes back to them. If they choose to keep the policy, they can take a loan from the cash balance at a favorable rate.
Cash value can also help offset college expenses, be used for a down payment on a house, or anything they'd like.
3. Financial literacy
As parents prepare children for the future, education around financial concepts is priceless.
"This includes teaching them about budgeting, saving, and financial literacy," says Lyon. "Life insurance provides a natural opportunity to talk to them about financial preparedness."
As your child matures, you can start to teach them about their policy and explain its benefits. You can educate them on the importance of insurance and discuss how the cash value works.
"It's a chance to lead by example when it comes to making decisions that affect your family's finances. This gives your children a blueprint to follow when it's their turn to build a family," he says.
4. Paid-up insurance
A paid-up life insurance policy is another benefit of some whole life contracts. It's an option that in essence, allows the policy to be paid in full. Meaning, it will stay in force without the need for any more premium payments.
"This is especially popular for grandparents who want to gift a life policy to their adult grandchildren," Lyon says. "As long as the children don't cash it out, they'll have the coverage for the rest of their lives without a premium payment.” It allows them to pay a higher premium for a certain period to pay off the policy by the time a child comes of age.
This can be invaluable to a child's financial future. Since young adults usually don't have a lot of disposable income, a life insurance bill can be a burden. A paid-up option turns that burden into a valuable tool that can be a gift for a lifetime.
"As parents, we want to see our kids grow up living healthy and productive lives," he says. "We want to remove any barriers that may cause harm or hinder their growth. Their financial well-being deserves the same thoughtfulness."
"Life insurance is one of the opportunities we have to help them along that journey."
To receive a quote or application for the children in your life, schedule a call with a USAA Life Insurance specialist. Or call us at your convenience at 800-531-5433.