Children's whole life insurance: Benefits & alternatives

From your child's earliest moments, it's natural to start planning for their future—including taking steps to strengthen their financial security.

One tool that offers long-term benefits is children's whole life insurance. This solution provides financial protection well into adulthood plus a cash source your child can tap to cover crucial expenses.

Whole life insurance for children is a type of permanent life insurance you can get for a child while they're still younger than 18. As long as premiums are paid, the contract's coverage can continue throughout your child's life.

If your child passes away while the policy is active, it pays a death benefit. Whole life insurance also includes cash value, which is guaranteed to grow over time. That's a resource your child can access to meet financial needs later in life.

Typically, you own your child's whole life policy until they reach a certain age (usually between 18 and 25). At that point, depending on the terms of your contract, ownership may transfer to your child, who can take on the premiums and maintain the coverage for as long as they like.

As with other life insurance policies, children's whole life insurance has benefits that can help ease financial burdens during a difficult time. You might use its tax-free death benefit to cover funeral expenses or offset costs you incur while taking time to grieve.

Choosing whole life insurance for kids also provides five key benefits that may be important to you and your family.

Your child can keep their policy for their entire life regardless of health status or other factors. That can be especially valuable if they develop a medical condition or participate in high-risk jobs or hobbies.

Children's whole life premiums typically don't go up no matter how long your child has the coverage. Generally, the older someone is when they acquire life insurance, the higher their premiums will be. By buying a policy while your child is young, you can lock in a rate that's likely much lower than they'd get if they opened a comparable policy later in life.

Unlike term life insurance, whole life insurance includes a guaranteed cash value component. That means a portion of the premiums are invested for tax-deferred growth. As an adult, your child can take loans or withdrawals from that money,¹ put it toward premium payments or cash out the policy entirely.

Children's whole life insurance—like some stocks and other investment products—may pay regular dividends, which your child can save, spend, invest or use to pay premiums or increase their coverage.²

Learn more about Thrivent's dividend history

Once your child takes ownership of the insurance contract, they can use it to start building a stable financial future. They might keep the policy long-term, tap the cash value for expenses such as college tuition or the down payment on a house, or convert the policy to an annuity that will provide income during retirement.

This solution may appeal to people whose financial plans stress stability, predictability and protection. These include:

• Families with a history of health issues. If a medical condition runs in your family, you might want insurance your child can keep through adulthood—so they don't have to worry about being denied coverage later in life.

• People who like guaranteed rates and returns. Lifelong, locked-in premiums are easy to budget around. And, the cash value of whole life insurance is guaranteed to grow.

• Investors who want a balanced portfolio. If your other investments are closely tied to market activity, you might appreciate a whole life insurance policy's lower-risk approach to building cash value.

Children's whole life insurance isn't for everyone. Premiums may not be budget-friendly during your child-raising years. And coverage may be lower than what your child will want as an adult. Some alternatives you might consider include:

With term life insurance, premiums will likely be lower, but the coverage only lasts for a limited time before it expires. Plus, there's no cash value option. However, this option can be smart and affordable to start with and then convert to permanent life insurance if possible.

A whole life policy's cash value growth may be limited by a low rate of return. You might instead open an IRA you can pass to your kids or a 529 qualified tuition plan they can use to cover college or other educational costs. These accounts often have market-based investment options that may gain more earnings in the long term.

With benefits including cash value, locked-in rates and lifetime coverage, children's whole life insurance can help form the foundation of your child's financial future. If this tool sounds useful, consider connecting with a Thrivent financial advisor to discuss the pros and cons and decide whether it's a good fit for your family.