Life Insurance for Kids: Policy Costs, Cash Value and Coverage Limits

Life insurance for kids is usually a small permanent policy bought by a parent or grandparent or a rider attached to an adult’s policy. It can help cover final expenses and, in some cases, preserve the child’s ability to buy more coverage later regardless of health. Permanent policies may also build cash value, but that feature can take years to become meaningful. Costs, limits and benefits vary by insurer, so compare current quotes and policy illustrations before buying.

A financial advisor can help set up your finances so that they are protected and prepared for the unexpected.

Types of Life Insurance for Kids

A juvenile whole life policy provides permanent coverage as long as required premiums are paid. It also builds cash value. Guaranteed universal life, or GUL, is another permanent option. It generally focuses more on keeping a death benefit in force than accumulating substantial cash value. Pacific Life’s PL Promise GUL, for example, accepts issue ages beginning at 0.

A child term rider is usually cheaper. It adds temporary coverage for children to a parent’s policy. For example, State Farm currently offers up to $20,000 per covered child, with coverage generally ending at age 25 and an option to convert to permanent insurance. ¹ The following chart breaks down some of the most common options available:

A guaranteed insurability rider can matter if future health is your biggest concern. Mutual of Omaha’s children’s policy, for example, permits additional purchases without evidence of insurability at specified ages or life events. ²

What Children’s Life Insurance Costs

Premiums for children can be relatively low because of their age, but permanent insurance generally costs more than temporary rider coverage for a comparable benefit. Price also depends on the child’s age, death benefit, policy type, state and how premiums are scheduled.

How Cash Value Works

Whole life policies build cash value from premiums after insurance costs and fees. Policyholders may be able to borrow against that value.

Cash value can be small in the early years. NAIC generally advises buyers request a policy illustration, because some policies build value slowly at first and non-guaranteed values can change.

Consider this MassMutual sample illustration for a $100,000 whole life policy. It is for a 21-year-old adult, not a child, so it should only be used to show how premiums and cash value can diverge over time. ⁵

*The higher illustrated values are assumptions; they depend on non-guaranteed dividends and could be lower or higher in practice.

Policy loans also charge interest. Unpaid loans can reduce the death benefit, and a policy that lapses or is surrendered with loans outstanding can create tax consequences. The IRS generally taxes surrender proceeds to the extent they exceed your investment in the contract.

Overfunding can create another complication. A policy that fails the IRS seven-pay test becomes a modified endowment contract, or MEC. MEC loans and distributions receive less favorable tax treatment, and some taxable distributions can face an additional 10% tax.

Coverage Limits and Underwriting Rules

Juvenile policies usually offer much smaller death benefits than adult policies. Mutual of Omaha, for example, currently offers children’s whole life coverage from $5,000 to $50,000 for issue ages 14 days through 17 years. Its underwriting uses limited health questions and generally does not require a medical exam. Rules can also vary by state.

When It May Make Sense and the Alternatives

Children usually do not provide income that a household depends on, so traditional income replacement is rarely the main reason to insure them.

A policy may make more sense when future insurability is important. For instance, a family history of certain health problems could make the option to buy additional insurance later without new medical underwriting more valuable.

Permanent coverage may also fit if you deliberately want to transfer an existing policy to the child as an adult.

If the real goal is saving or investing, compare other accounts first.

One alternative, a 529 plan, can provide tax-free qualified education withdrawals. Meanwhile, a Roth IRA becomes an option once the child has legitimate earned income. For 2026, the contribution generally cannot exceed the lesser of $7,500 or the child’s taxable compensation.

Before buying insurance on a child, it may also make sense to check whether the adults supporting the household have enough coverage. SmartAsset’s life insurance calculator can help estimate adult coverage needs based on income, debts and family obligations.

Ultimately, though, if your primary goal is building money for college or adulthood, compare the policy’s guaranteed cash values and costs with a 529, custodial account or Roth IRA before deciding.

Bottom Line

Life insurance for kids can make sense when your main goal is covering final expenses or preserving a child’s ability to buy more coverage later, especially if future health could become a concern. Permanent policies may also build cash value, but that growth can be slow and comes with costs and policy restrictions. If your priority is saving for college or helping a child build wealth, compare the policy with alternatives such as a 529 plan, custodial account or Roth IRA, before deciding.

Tips for Financial Planning

• Do you have a full financial plan that takes into account not just growing wealth but also protecting it? If not, that’s where a financial advisor can come in and help. They have the expertise to get your finances on track and make sure you’re prepared for the future. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Consider using a retirement calculator to help know how much money you might need to save for your golden years.

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