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What is a juvenile life insurance policy?

Mother helping daughter (2yrs) put on coat

As a parent, you have a lot on your plate. You want to watch your kids grow and thrive while protecting them and their future. One way to do that is through life insurance—for both you and your children.

No parent wants to think about needing juvenile life insurance, but this type of coverage offers more than a death benefit in the event of the worst-case scenario. It's also a way to help provide future insurability, build cash value and lock in an affordable premium for the long term.

What is a juvenile life insurance policy?

Juvenile life insurance is a permanent policy purchased for a minor child, usually under the age of 16, by a parent, grandparent or guardian. These policies are a type of permanent life insurance that lasts for your child's lifetime and pays out a death benefit at any age as long as sufficient premiums are paid.

Depending on your needs, there are a few different options to explore:

  • Whole life insurance provides coverage for life as long as premiums are paid, and the premiums are locked (meaning your monthly payments won't go up over time) and offers a cash value component.
  • Universal life insurance also provides permanent coverage and potential cash value, yet may allow for more flexibility with premium payments.
  • Variable universal life insurance is another type of permanent life insurance with a potential cash value component yet has various investment options, which may benefit high-earners.

Many child life insurance policies are whole life insurance policies. As previously stated, whole life insurance provides coverage for life as long as the premiums are paid. The rates are also locked at the time of purchase.

Another benefit of whole life insurance is it builds cash value paid through your premium. Your premium is spread across three areas:

  • A portion to the death benefit
  • A portion to administration and fees
  • A portion to your policy's cash value

The insurance company takes this cash value amount and puts it into a conservative investment vehicle, so it has the potential to grow over time.

What are the benefits of juvenile life insurance?

For many parents, a couple of key benefits make whole life insurance for their children an attractive option:

Juvenile life insurance can offer coverage for life.

As long as premiums are paid and the contract retains its value, juvenile life insurance guarantees coverage for life. That may not seem like a big deal when your child is young and healthy. However, as people age, life insurance generally becomes more expensive. In addition, those who have pre-existing conditions or get sick may find it more challenging to get coverage. Then if they do, their premiums are typically more costly. So, this type of policy can ensure your child will have some form of life insurance regardless of their health later in life.

Cost of the policy stays the same.

The policy cost stays the same throughout the rest of your child's life. So, when they are 65 years old, the premium will be the same as it is right now while they're young. In addition, your child doesn't have to undergo any medical exams, as with many other types of coverage. Given that coverage is guaranteed as they age, they won't have to take any exams as they get older to keep this policy going.

Cash value component is a benefit.

The cash value component provides another benefit to whole life insurance policies. It is a conservative investment that can, over time, supplement retirement income or become part of your child's overall financial portfolio. In addition, once cash begins accumulating in the policy, your child can tap into these funds if needed.

What else should you know about life insurance for children?

Before you decide on any life insurance policy, it's essential to look at all factors—both the benefits and the potential limitations. Having all the information can help you make the best decision.

Here are a few other things to keep in mind when deciding about child life insurance:

  • Most life insurance companies offer a guaranteed purchase or a guaranteed increase rider to juvenile life insurance contracts. This allows your child to purchase additional coverage in the future without having to prove good health. This may be offered in the form of a new contract or an increase to an existing contract. Keep in mind that any additional coverage elected through this rider will require additional premiums.
  • Any loan taken out against the policy's cash value may not need to be paid back out of pocket, but the amount will be deducted from the death benefit.
  • You'll need to decide on this type of policy while your child is still very young, typically under 16 years old.

What other options should your family consider?

Life insurance coverage does not come as a one-size-fits-all policy. Every family has different needs, so it's important as you research your options to find the ones that work best for your family.

There are other options you may want to consider to still provide some protection for you and your children:

  • Review your coverage. One place to start is to look at your current coverage and see if it would be enough to financially protect your family if something were to happen to you, and then adjust as needed.
  • Look at a child rider. This is an add-on to your current policy. It provides a small death benefit if your child dies. While medical exams typically aren't required, insurers may ask about your children's health or pre-existing conditions.
  • Consider group coverage. Your employer may offer group insurance coverage with an add-on for spouses or children. However, check with your employer to see whether you'd lose that coverage if you change jobs.

Making the best choice for your needs

There are a lot of factors involved when it comes to life insurance. It can feel confusing at times, especially when you have to make some important decisions.

But remember: You can always seek guidance from a financial advisor. Your advisor will listen to your needs and help you work through the best options for your situation.

Connect with a local financial advisor now who can help you and your family.

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Paying large additional premiums may cause your contract to become a modified endowment contract (MEC) as defined in the Internal Revenue Code (IRC). This will affect the taxation of any distributions from your contract. In addition, the IRC limits the amount of premiums that can be paid into your contract. Also, reducing premiums or skipping a premium payment will affect your accumulated value.

Loans and surrenders will decrease the death proceeds and the value available to pay insurance costs which may cause the contract to terminate without value. Surrenders may generate an income tax liability and charges may apply. A significant taxable event can occur if a contract terminates with outstanding debt. Contact your tax advisor for further details. Loaned values may accumulate at a lower rate than unloaned values.
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