Life insurance isn't just for adults. It's also possible to buy what's known as juvenile life insurance, which is coverage for children and teens. If you have the extra money to spare and want to support your grandchildren or other young family members, these policies offer some interesting benefits. Here's how they work.
What Is Juvenile Life Insurance?
Juvenile life insurance is an insurance policy for a minor, someone aged 17 years and younger. Since minors aren't legally adults, they can't buy a contract on their own, but a family member could buy one for them. For example, a grandparent at or near retirement might buy life insurance as a gift for their grandchild.
These policies offer permanent coverage that won't expire so long as you pay the premiums. They set up insurance for your younger family members, which they can keep for the rest of their lives. Initially, you pay for the insurance, but you can transfer the policy and bills to your family members once they're adults.
You also have the option to pay off the policy by a certain date — for example, within 10 years of the first purchase. You'd owe more per month/year, but by paying everything off yourself, you'd gift your loved ones a policy they don't have to pay for.
What Are the Advantages?
Life insurance costs are based on a person's age when they sign up. With juvenile life insurance, your family members qualify at a significant discount — nearly half the price — compared to if they bought as adults. The premiums don't go up over time, so they'll keep that discount as they get older.
To buy life insurance at an older age, someone must pass medical underwriting. If your family member develops health problems in the future, insurance could become more expensive, and they may no longer be able to qualify. By providing them coverage now, you can ensure this won't happen. You can also set up the policy to give them the option to buy more insurance later without a medical exam.
Juvenile life insurance policies can also build cash value, which is a reserve of money you and your family member could take out while still alive. These policies typically pay a guaranteed rate of return and can show you how much you'd help save for your loved ones over time.
What Are the Drawbacks?
There are some drawbacks to consider for this type of life insurance. First, after you buy the policy, you need to keep up with the ongoing payments to keep the coverage. If you or your loved ones can no longer afford the premiums, they would lose the insurance along with the benefits.
It takes time to build cash value, so if your grandchild cancels the policy early, they won't receive as much back as you may have expected. There are also other investments, like stocks, which have more risk but can potentially earn a higher return. If you're trying to help your family save for college, investing through a 529 plan is an alternative.
Should You Use Juvenile Life Insurance in Retirement?
It depends on where you stand with the rest of your financial plan, including whether you need life insurance in retirement for yourself. It's a noble goal to support other family members, but make sure you have enough in savings to cover your own expenses first, including long-term care.
Given your budget, consider whether you can safely cover the insurance premiums over time so you don't risk being unable to pay and losing the policy. If you have the resources to spare, though, juvenile life insurance is a way to protect your loved ones while helping them save for the future, too.
For more information, speak with an insurance representative about your options and then discuss with the rest of your family.