Pros and cons of getting your baby their own policy.
You’re pregnant, and you’ve been thinking about life insurance to protect your soon-to-be bouncing baby. But you might be thinking about protecting your unborn baby. Setting up life insurance on newborn or even unborn babies may seem like a good idea—even a great one. But it depends on whether or not it’s a good idea for you and your baby. As with all things, there are advantages and disadvantages.
- When can you get life insurance on a baby?
- Advantages and disadvantages to life insurance on newborn baby
- Alternatives to infant life insurance
When can you get life insurance on a baby?
Can you get life insurance on an unborn baby? The short answer is no, you can’t. In the US, you can’t get life insurance on an unborn baby or babies. Children typically start to be eligible for policies once they’re about 14 or 15 days old. Two weeks after the birth, you can start looking at purchasing a policy.
What kind of policy? Well, most companies don't offer term life policies for babies. Instead, children’s life insurance policies are typically whole life or some permanent variant. If you’re not sure about the difference between term and permanent life insurance policies, click here. Just know that most life insurance policies for babies are going to be permanent life insurance. Is that the right option for your baby? You gotta weigh the pros and cons.
Advantages and disadvantages of life insurance for newborn baby
Children’s life insurance policies do have some advantages. For one, unlike most adults, your newborn isn’t going to have to go through a medical exam during the underwriting phase. And the younger you purchase a policy for the child, the cheaper it’ll usually be. Whole life policies will probably be significantly lower for a child than they would be for an adult.
Since the coverage is permanent (assuming premiums remain paid), you, as the parent, can eventually transfer ownership of the policy to the child at any point. They’ll basically have a life insurance policy waiting with cheaper rates already locked in. Sounds like a pretty sweet deal, right? What’s the catch?
Permanent life insurance policies often have something called “cash value.” It’s a feature that earns interest or other investment gains. And it grows tax-deferred. A children’s life insurance policy, being permanent, may come with cash value. The catch is that these typically have low rates of return. It could take approx. 15 years for a child’s policy cash value to equal premiums paid. All told, you could be paying for decades before the policy begins to show positive value.
And, as morbid as this sounds, the death payouts are rather low. Several insurers limit coverage at around $50,000. That might cover final expenses for a child. However, if you plan to transfer ownership, that coverage amount might not cover your child’s future needs or beneficiaries.
Alternatives to infant life insurance
Children’s life insurance can be great if you want it. But if you don’t want or need it, there are other ways to protect your new bundle of joy. You could use the money that would go to premiums in other ways. Permanent life policies aren’t substitutes for 529 college savings plans for example. You could use that money to directly invest and save for your child’s educational future.
And if you’re not in the mood for permanent life insurance, you can still cover your existing and future children with your own life insurance policy, permanent or term. One way is to add a child rider to your already-existing policy, if offered by the insurer. A rider is a policy add-on, and you can purchase multiple for the same plan. And just like children’s life insurance, they typically can be added to your policy once the child is two weeks old.
While Wysh doesn’t offer child riders, we do have customizable and personalized policies that can fit most of your needs. So check out our Wysh Builder and see if you can build a policy that might work for you.