Is Life Insurance for Children Term or Permanent?

Life insurance typically covers the person who buys the policy. If the policyholder passes away during the policy term, their loved ones get a death benefit payout to replace the policyholder’s income, pay off debts, and set aside savings.

However, parents can also purchase life insurance coverage for their children in case the worst happens. Since life insurance for children is less known, you may be wondering about how it works and whether it’s term or permanent life insurance. This article will explain how life insurance for children works and some of the policy types you can get.

How does life insurance for children work?

Life insurance for children works like a typical life insurance policy with one key difference: it pays out a death benefit if one of the policyholder’s children dies. These death benefits tend to be smaller — enough for the policyholder to cover funeral expenses and ease financial strains while they grieve. You may be able to transfer your child’s life insurance policy to your child when they’re an adult as well. They can then take over the policy and premium payments     .

You can get term life insurance or permanent life insurance for children depending on your needs. Next, we’ll look at the key differences to help you decide on the best option for you.

Term life insurance vs. permanent life insurance for children

Here are three key differences between term life insurance and permanent life insurance for children:

Premium costs

Term life insurance premiums tend to be quite affordable, while permanent life insurance premiums typically cost more. We can use regular life insurance premiums to illustrate. According to Forbes, a healthy 30-year-old male or female will pay 1,221% more per year for a $250,000 whole life insurance policy than a 20-year, $250,000 term life insurance policy.

These are for adults, but it illustrates how much more permanent life insurance policies can cost for their lifelong coverage and cash value. Term life insurance can work well for budget-conscious parents, whereas permanent life insurance may be a better fit for parents willing to invest more for lifelong coverage.

Term length

Term life insurance can last for any period from 10 to 30 years, depending on your choice. Some may be available for periods shorter than 10 years. That means once your policy expires, you must renew your policy or buy another to continue coverage.

Getting a policy longer than 20 years can offer the benefits of permanent life insurance coverage insofar as it covers your child until they’re an independent adult. However, permanent life insurance lasts for life. That means that once your child becomes an adult, you can transfer it to them, and they can continue with the policy for life without needing to get their own.

Cash value

With permanent life insurance, part of each premium goes into the cash value and grows tax-deferred at a certain rate. You can withdraw or borrow from it at great rates and terms when it grows enough and get the cash value minus surrender charges if you surrender the policy.

Cash value can be helpful for parents who want to build savings they can use on child-related expenses. For example, while they’re still a minor or in college, parents can use the cash value to help cover college costs. Afterward, they can transfer the policy to the child and allow them to tap into an existing cash value. Term life insurance, on the other hand, does not have cash value.

Get the right life insurance policy for your child

A life insurance policy for your child can help you cover costs in case the worst happens, allowing you to grieve without financial stress. Term life policies have no cash value and can expire, but premiums are typically affordable. These policies can work well for parents who want to watch their spending and don’t want to pass the policy on when their child becomes an adult.

Meanwhile, permanent life insurance’s cash value and lifelong coverage can work for parents looking to pass the policy and wealth onto their children. Whether you choose term or permanent life insurance for your child, get quotes from multiple insurers. This helps you compare quotes to save money on the coverage you need.