Most parents don't need life insurance on their children, but some situations make it worth considering

Life insurance on a child pays out a death benefit if the child dies. For most families, this is not a practical financial tool because children don't earn income that others depend on. The real financial risk in a household is usually the death of a working parent — that's who brings in money and whose absence creates a gap. A child's death is devastating emotionally, but it doesn't create the same economic hole that a parent's death does.

That said, there are specific reasons some parents buy small policies on their children: to lock in insurability while the child is young and healthy, to cover funeral costs without burdening the family, or to build a small cash value that the child can access later as an adult. These are narrow use cases, not standard practice.

Key Takeaways

  • Children don't generate household income, so the main reason to insure a working adult — replacing lost earnings — doesn't apply to them.
  • Funeral costs typically run $7,000 to $12,000, and some parents buy a small policy specifically to cover this without straining family finances.
  • Locking in a child's insurability now means they pay lower premiums later as an adult, even if they develop a health condition in the meantime.
  • A policy with cash value (whole life or universal life) can serve as a savings tool, though the returns are usually modest compared to other investments.
  • Term life insurance on a child is cheaper than permanent insurance but expires when the policy term ends, so it doesn't protect future insurability.

When funeral costs are the real concern

The most straightforward reason to buy life insurance on a child is to cover funeral and burial expenses without forcing the family to scramble for money during an already traumatic time. A funeral typically costs between $7,000 and $12,000, depending on location and the type of service. For families living paycheck to paycheck, that's money they don't have on hand.

A small permanent policy — usually $10,000 to $25,000 in coverage — can sit quietly for decades and serve exactly this purpose if needed. The monthly premium on a child is low, often $15 to $40 depending on the child's age and the type of policy. Some parents view this as a form of protection against financial chaos at an already impossible moment.

This reasoning is practical and doesn't require you to believe the unthinkable is likely. It's more like having a fire extinguisher: you hope you never use it, but if you do, you're glad it's there.

Locking in insurability while your child is young and healthy

Insurance companies charge based on health and age. A healthy 5-year-old pays far less per month than a healthy 25-year-old, who pays far less than a 45-year-old. If you buy a policy now, your child locks in that young person's rate for life — or for the length of the policy, depending on the type.

This matters if your child develops a health condition later. Suppose your child is diagnosed with diabetes, asthma, or a heart condition at age 20. If they already have a policy from childhood, that policy is theirs regardless of the diagnosis. If they don't have one and try to buy insurance after the diagnosis, they'll either pay much higher premiums or be turned down entirely. Some conditions make you uninsurable at any price.

Parents sometimes buy a small permanent policy for this reason alone — not because they expect to use the death benefit, but because they want to may provide their child can always get insurance as an adult. This is a long-term bet on peace of mind.

How permanent and term policies work differently for children

Term life insurance covers your child for a set period — typically 10, 20, or 30 years — and costs very little. A $20,000 term policy on a healthy child might cost $10 to $20 per month. If the child dies during the term, the benefit pays out. If the term ends and the child is still alive, the policy expires and coverage stops. At that point, if your child wants insurance as an adult, they have to apply fresh and will pay adult rates.

Permanent life insurance (whole life or universal life) lasts the child's entire life as long as premiums are paid. It costs more — perhaps $40 to $80 per month for the same $20,000 benefit — but it builds cash value over time. That cash value is money the child can borrow against or withdraw later, and it grows tax-deferred. When the child becomes an adult, they own the policy outright and can keep it, surrender it for the cash value, or convert it to a different type of coverage.

Term makes sense if your only goal is to cover funeral costs cheaply. Permanent makes sense if you want to lock in insurability or build a small savings vehicle for your child's future.

What you should not expect from a child's life insurance policy

Life insurance on a child is not an investment strategy. The cash value in a permanent policy grows slowly — typically 2% to 4% per year after fees and commissions. You would likely earn more in a 529 college savings plan, a Roth IRA (once your child has earned income), or even a regular savings account. If building wealth for your child is the goal, insurance is an inefficient tool.

Life insurance also doesn't replace the need for a will or guardianship plan. If your child dies, the insurance payout goes to whoever you name as beneficiary — usually you, the parent. It doesn't determine who raises your other children or how your estate is handled. Those decisions require a separate will and possibly a trust.

Finally, a child's policy doesn't protect you financially the way a parent's policy does. Your child's death would be heartbreaking, but it wouldn't reduce your household income or create new expenses you can't cover. The insurance payout helps with funeral costs, but it doesn't replace a paycheck.

The alternative: self-insuring and saving instead

Many financial advisors suggest skipping the child's policy altogether and instead setting aside money in a dedicated savings account or investment account. Over 18 years, even small monthly deposits add up. A parent who puts $25 per month into a high-yield savings account will have roughly $5,400 by the time the child turns 18 — enough to cover most funeral costs and more flexible than an insurance policy.

This approach works if you're disciplined about saving and if you're comfortable carrying the small risk that you won't have the money available if something happens. It also gives you access to the money for other purposes if the child survives to adulthood, whereas an insurance policy is locked in for its stated purpose.

The trade-off is that self-insuring doesn't lock in your child's future insurability. If your child develops a health condition, the savings account doesn't help them get insurance later. For some families, that's an acceptable trade-off. For others, the peace of mind of having a policy in place is worth the cost.

Questions to ask before you decide

Before buying a policy, ask yourself: Am I buying this to cover funeral costs, to lock in insurability, or to save money for my child's future? Each reason points to a different type of policy or a different decision altogether. If it's funeral costs, a small term policy is efficient. If it's insurability, permanent insurance makes more sense. If it's savings, you might be better off with a dedicated account.

Also consider your own insurance situation. If you don't have adequate life insurance on yourself as the earning parent, that should come first. A $500,000 term policy on yourself costs far less than you might think and protects your family far more than a child's policy ever could. Get that in place before you worry about insuring your children.

Frequently Asked Questions

Can my child's policy pay out if they die by suicide?

Most policies have a suicide clause that voids the benefit if death occurs within the first two years of the policy. After two years, suicide is typically covered. Check the specific policy language, as this varies by insurer and policy type.

What happens to the policy if I stop paying premiums?

With term insurance, the policy simply expires and coverage ends. With permanent insurance, the policy may lapse after a grace period (usually 30 days), or the cash value may be used to pay premiums automatically if the policy allows it. You'll want to clarify this with your insurer before buying.

Can my child take over the policy when they turn 18?

Yes. When your child reaches adulthood, you can transfer ownership of the policy to them. They then become responsible for paying premiums. Some policies allow this transfer automatically; others require paperwork. Discuss this with your insurance agent when you buy the policy.

Is there a tax benefit to buying life insurance on my child?

The death benefit itself is not taxable income to the beneficiary. The cash value in a permanent policy grows tax-deferred, meaning you don't pay taxes on the growth each year. However, if you withdraw cash value, you may owe taxes on gains above what you paid in premiums. This is not a major tax strategy for most families.

What if my child is adopted or a stepchild?

You can buy life insurance on any child you have a legal relationship with — biological, adopted, or step. You'll need to show insurable interest, which means the child's death would cause you financial loss. For a parent, this is automatic. The application process is the same as for any child.