Should You Insure Your Children?

Roy S. Gilbert

October 07, 2025

This may not be a simple yes/no question. The answer is…maybe…it depends. What are some of the considerations it may depend on?

Are funds available to pay the annual premiums?
What is the goal of insuring the children? Is it an important objective or merely a step towards another objective?
What is the likelihood that the policies will be kept in force after your children are adults? Who will be responsible for keeping them in force?
Who will be the policyowner and beneficiary?
If the insured child decides to surrender or cash in the policy if the adult policyowner, would you be disappointed and consider the insurance plan a failure?

A thorough planning job involves a comprehensive look at a client situation – not just at investments, insurance, taxes or legal documents – to make a truly cross-disciplinary assessment of a client’s financial condition. This process presumes the use of the tools available to prepare for the risks of the future. One of those tools is life insurance. Insuring children is a tool that should serve a purpose in the broad plan.

At the Family Wealth Decisions Group, our mission is to help clients to achieve what is important to them in life. Inherent in that mission is helping clients identify and reduce the risk of bad things happening. The topic of insurance arises when discussing risk. Insurance can be used as a solution or partial solution in addressing many different kinds of risk including (but not necessarily limited to): premature death, medical issues, loss of income due to a disability, a long-term care need, property loss and injury due to accidents, losses from a disaster or lawsuits and losses from identity theft.

How do you determine which of these risks to insure against? Most people cannot afford to insure against all risks. They need to pick and choose among them. Sometimes the risks with the highest priority may change over time. A potential financial process to arrive at an answer to the question of which risks to insure against may be relatively simple:

First examine the probability of occurrence of a particular risk and then examine the financial impact to you should that risk occur.
Next consider insuring against those risks that could cause the greatest financial damage and have the greatest probability of occurrence.

An analysis of likelihood of occurrence and amount of potential damage from an occurrence suggests additional considerations may be added to the list at the beginning of this article – specifically concerning insuring the lives of your children:

What is the likelihood of your child dying prematurely relative to other risks competing for your insurance dollar?
What is the potential amount of financial damage that could result from this occurrence?

It may be logical to assume that the cost of insurance increases with the likelihood of an event occurring and with the amount of damage that might result if such event occurs. Therefore, it may be likely that the cost of a $1,000,000 life insurance policy on a 75-year-old male would be greater than the cost of a similar type $25,000 life insurance policy on a 5-year-old child. However, purchasing an insurance policy simply because it is inexpensive, may result in insuring against a risk that is not likely to occur or one that would not likely cause a lot of financial damage…not a potentially devastating risk.

Strictly from a financial perspective, when allocating dollars to be spent on insurance, the financial planning priority of insuring a child with a relatively small death benefit may be relatively low on the list. It may come after insuring the family wage earners against a premature death or disability. It may come after insuring the home against burning down and after purchasing adequate medical and personal liability insurance. Finally, it may also come after making sure there is an adequate emergency reserve to handle the myriad of unanticipated smaller risks that arise in life.

Purchasing a fixed amount of insurance on a young child might bear no relationship to the child’s insurance needs in adulthood. Additionally, the real value of a fixed amount of death benefit might shrink due to the ravages of inflation over a long period of time. Some commentators have blogged that insuring a child may be wrong in nearly all cases¹. However, there may be some value in considering insuring a child after higher priority insurance objectives have been addressed.

Aside from the potential income tax advantages of insurance cash values and death benefits, another potential advantage of insuring a child is locking in the child’s insurability - especially in policies where there is the potential of future death benefit increases, either automatically occurring or available for purchase⁴.

Life insurance on a child may be available as a standalone policy or as a rider on a parent’s, grandparent’s or guardian’s policy. Often available coverage amounts are limited³. In general, when considering insuring a child, permanent insurance and not term insurance is suggested…even as a rider on the parent’s policy².

If you are considering obtaining life insurance on a child or grandchild and would like to discuss the value of such a purchase or whether there might be alternatives worth assessing, we’d like to talk to you. Please contact us for a complimentary 30-minute consultation. Remember, we are here to help.

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