Whole Life Insurance for Children: Pros and Cons

A child's whole life policy is affordable because of their age, and it can grow with them for life.

Here is how to decide whether it fits your family.

Part of our complete guide: Whole Life Insurance: The Complete Guide.

Whole life for grandchildren: should you buy whole life for a child?

Some parents and grandparents buy a small whole life policy for a child. It locks in insurability, meaning the child keeps coverage no matter how their health changes, and it builds cash value over a long time.

The main purpose of life insurance is to replace income, and children do not have income to replace. So most planners suggest covering the parents first, then considering a child policy if the budget allows.

How whole life insurance works

Whole life combines lifelong coverage with cash value. It is the most predictable kind of permanent life insurance.

• Lasts for life as long as premiums are paid.
• Level premiums that do not rise with age.
• Cash value that grows on a schedule in the contract.
• Possible dividends on participating policies from mutual insurers, though dividends are never assured.

What is cash value?

Think of cash value as a reserve that builds inside the policy. It starts small and grows over decades. You can tap it through policy loans, but anything you borrow and do not repay reduces what your beneficiaries receive.

Whole life cash value growth is set by the contract, which makes it predictable. Participating policies may also earn dividends, which can add to cash value, though dividends depend on the insurer's results each year.

What affects the cost of whole life insurance?

• Age at purchase. Premiums are level for life, so buying younger sets a lower lifetime rate.
• Health. Your rate class depends on underwriting.
• Tobacco use. Raises the premium.
• Coverage amount. Whole life costs more per dollar of coverage than term.
• Premium schedule. Paying over a shorter period, like 20 years, means higher payments for fewer years.
• Participating or not. Participating designs can cost more up front.

What are whole life dividends?

Participating whole life shares some of the insurer's results with policyholders through dividends. You choose how to use them, and paid-up additions are a popular option for growing coverage and cash value over time.

When comparing policies, look at the contractual values separately from projected dividends. Projections are illustrations, not promises.

Who gets the money: naming beneficiaries

Your beneficiary is the person, people or trust that receives the death benefit. Name a primary beneficiary and at least one contingent beneficiary, who receives the money if the primary beneficiary has already passed away.

• Use full names. "My children" can cause delays. Full names and relationships are clearer.
• Split it if you like. You can divide the benefit among several people in shares you choose.
• Think about minors. Insurers generally will not pay a large sum straight to a child. A trust or a custodian named under your state's rules avoids a court-appointed guardian.
• Review after life events. Marriage, divorce, a new baby or a loss in the family are all reasons to check your choices.

Beneficiary designations usually override your will. If your will says one thing and your policy says another, the policy form generally controls. Keep them in sync, and ask an attorney if your situation is complex.

Why work with an independent agency

We are an independent agency, which means we are not tied to one insurer. We compare plans from several carriers and help you pick the one that fits.

• More choices. Several carriers, not one.
• Help with health history. Some carriers view certain conditions more favorably than others.
• No added cost. Premiums are set by the carrier, not the agent.
• No pressure. If a policy is not a fit, we will say so.

Whole life vs. term life

Many people use both: term for large temporary needs and a smaller whole life policy for lasting goals.

Who whole life insurance is for