Help For Grandparents Buying Life Insurance For Grandchildren

Naturally, grandparents often want to take steps to help their grandchildren have a strong financial future. There is a range of options to help you start a nest egg for your grandchild, from financial trusts to custodial savings accounts to stock portfolios.

Life insurance accounts are another popular option. You’ve likely even seen children’s life insurance policies aimed at grandparents advertised. There are benefits to these policies. They offer lifelong coverage, premiums that never increase, a death benefit that never decreases, and even build guaranteed cash value as your grandchild grows.

Does that mean they’re a good idea? Not always. There are times and situations when buying a life insurance policy for your grandchild or grandchildren makes sense. However, they’re not suitable for every family and every child.

Read on to learn more about how to get a life insurance policy for your grandchild, when it might make sense to get one, and when you should seek out an alternative.

The Basics of Whole Life Insurance Policies for Children

Life insurance policies for children are almost alwayswhole life policies. A whole life insurance policy is a type of permanent life insurance policy. It will last for the rest of the child’s life as long as the premiums are paid and the policy stays active.

Whole life insurance policies also build guaranteed cash value, similar to a savings account. The savings and cash value feature can make them an appealing option for grandparents looking to take out a policy for their grandchildren, giving them a headstart to having a financial nest egg while providing financial protection should the unthinkable occur.

When it comes to cost, whole life policies are almost always the most expensive life insurance option, but premiums are guaranteed to remain the same price for the entire life of the contract.

However, you’ll always pay less for a life insurance policy on someone young and healthy. This also applies whether that policy is taken out on yourself or someone else. That means that whole life insurance policies for very young children are less expensive than whole life policies for adults.

Once you purchase a life insurance policy for your grandchild, you, as the grandparent, will be the policy owner. Minors cannot own a life insurance policy until they have reached the legal adult age. Therefore, the policy owner is the individual responsible for managing the life insurance policy and making the premium payments.

Once your grandchild turns 18, you may transfer ownership of the policy to your grandchild if you choose to. If you transfer ownership of the life insurance policy to your grandchild, they will become the policyholder and be responsible for managing the policy and its payments.

Some policies will automatically transfer to your grandchild when they reach one of those milestone birthdays.

Child Riders: Putting Your Grandchild On Your Own Life Insurance Policy

If you’re a grandparent who is also looking into life insurance options for yourself and your grandchild, you may want to add them to your own coverage as a child rider.

A child rider is an optional policy rider that, when elected, allows for parents, legal guardians, or grandparents with an insurable interest to the child to add them onto their own life insurance policy so that they can receive coverage.

With this rider in place, any children covered under the rider will receive temporary life insurance coverage (generally up to $25,000) until they have reached a specific age (generally up to age 25).

If the child were to pass away while receiving coverage as a child rider, your policy would then pay out a separate death benefit to you as the policyholder.

Most child riders also offer a guaranteed conversion option. The conversion option allows the term insurance coverage to be converted into the child’s own permanent life insurance plan. Plus, most child riders allow the original child coverage amount to be multiplied by up to 5x the coverage amount originally received under the rider.

Adding a child rider to your own life insurance plan will raise your monthly premiums. However, it will be much cheaper than purchasing a separate life insurance policy for your grandchild.

Applying for Life Insurance for Your Grandchild

The process of applying for a life insurance policy for a child is a little different than applying for a policy as an adult. The application process will need to be completed by the grandparent and often with the help of a licensed life insurance agent.

Applying for the actual life insurance coverage can be done online and offer a quick approval process. In most cases, paper applications are available but will likely result in a little bit of a slower processing time.

However, there are a few things you should know before you begin:

You might need permission from your grandchild’s parents – Not often, but some states may require that grandparents have permission from the child’s parents before taking out a policy. Depending on your state, the child’s parents might need to sign off on the application or the final policy when approved. If you are the legal guardian of your grandchild, then you will not need the parent’s permission to purchase life insurance for your grandchild.

The total policy amount is often limited – One of the major purposes of life insurance is to replace income. However, children don’t generally earn an income. For this reason, there are caps on the benefit amount you can apply for on the life insurance policy for your grandchild. Insurance companies will vary on the exact rules and allowable coverage limits, but coverage amounts tend to be capped at a maximum of $50,000 or less for children’s life insurance coverage.

You or the child’s parents will need to have a life insurance policy – Generally, you can’t buy a life insurance policy for your grandchild unless you, your spouse, or one of the children’s parents has a life insurance policy of some type in place. However, this is not a rule among all providers.

You’ll need to answer medical questions – Children are never required to complete a medical exam to receive life insurance coverage. However, you will need to answer questions about your grandchild’s health.

There might be an upper age limit – You can generally buy a life insurance policy for a minor child until they are 17, but this isn’t always the case. Some companies set the upper limit at a younger age. So it’s a good idea to check, especially if you’re looking for a policy for your teenage grandchild. 

Understanding Insurable Interest

You often need to prove you have an insurable interest before taking out a life insurance policy on another person. This includes children. Insurable interest means that you would be negatively impacted by the death of the person insured on the life insurance policy. Since life insurance is a financial product, that negative impact generally needs to be financial, too. 

Some insurance companies will automatically assume that close family members such as parents, step-parents, and grandparents have an insurable interest in minor children. However, other insurance companies might want to see more proof of your involvement in the child’s life or might require permission from the child’s parents.

Sometimes, the amount you can take out on a child that doesn’t live with you will be limited. So it’s a good idea to shop around and see what types of policies you might be able to get for your grandchildren and what information they might ask for. If you’re not sure where to start, a life insurance agent can help you find policies that are best suited to grandparents seeking life insurance for grandchildren.

Costs of Life Insurance Policies for Grandchildren

The cost of the life insurance policy you purchase for your grandchild will depend on your choices before and during the application process. While children’s life insurance rates are relatively inexpensive, life insurance providers stay competitive with each other by offering different policy features and rates.

As a result, it’s rare to see two companies offering the same rates for coverage. So if you’re looking for the most affordable plan, it is important to shop coverage options from multiple providers rather than choosing the first company you come across.

As with any life insurance plan, you’ll pay more for coverage when you take out a large benefit amount or older the grandchild is when you decide to apply for the actual life insurance policy.

Another factor that can affect your premiums is the payment structure of your policy. By default, life insurance policies are structured to offer a level premium guaranteed to stay the same price throughout the entire contract.

However, most whole life insurance plans will allow you to choose a shorter payment structure referred to as a limited pay plan. A limited payment plan provides for the entire cost of the life insurance to be paid off generally in one lump-sum payment or shorter payments of 10 or 20 years.

If you choose a limited payment plan, your premiums will be much higher than if you stick to a level payment structure that spreads the premiums across the contract’s life.

There are benefits to paying on a limited payment structure. For example, the life insurance plan will gain cash value growth faster, and should you choose to transfer ownership when your grandchild becomes an adult, you would be handing them over a paid-up policy.

Grandchildren Life Insurance Rate Chart

*Monthly rates shown in the above table represent the cost of a $25,000 and $50,000 grandchildren whole life insurance policy with Mutual of Omaha. These rates are current as of 2/14/2022.

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The Benefits of Life Insurance Policies for Grandchildren

Taking out a life insurance policy for your grandchildren can be an appealing option. It can provide lifelong benefits and build a foundation for your grandchild’s financial future. Other benefits include:

Child-sized premiums for life – When you purchase life insurance for your grandchild, the rates for their coverage are locked in for life. That means they will receive child-sized life insurance rates even when they are late in their adult life.

It builds cash value – Whole life insurance policies build guaranteed cash value growth. Every month when you pay the premium, a portion goes to the policy benefit amount, and a portion goes into the cash value account. The cash value accumulates interest and acts as a built-in savings account.

You or your grandchild can borrow from the cash value – You or your grandchild can borrow money from the cash value of the life insurance policy. Your grandchild could use that cash value to help with small financial expenses such as a down payment on a car in the future. They won’t be taxed on the money they borrow.

The cash value can be used to help pay for college – Your grandchild can use the cash value of their life insurance policy to help pay for a few college classes. This is a popular use for life insurance because, unlike the money in a traditional 529 account, the cash value of life insurance isn’t counted on a student financial aid application. 

Your grandchild will always have a policy – A whole life policy will last as long as the premiums are paid. That means that even if your grandchild were to develop a chronic illness or other condition that could make getting an insurance policy difficult later in life, the policy would remain in place, and their premiums would not change. Some policies even have riders that allow the benefit amount to increase, and the child becomes an adult without completing a new application or medical underwriting. 

Financial security for your child if something happened to your grandchild – No one wants to imagine needing to use the death benefit of a life insurance policy for a child, but a policy can be a great relief to grieving parents during a tragedy. A life insurance benefit amount can cover medical and funeral costs. Many grandparents who take out life insurance policies for their grandchildren name the children’s parents beneficiaries for this reason. 

Increased death benefit option – Children’s life insurance plans do not offer high amounts of coverage. Life insurance is primarily designed to offer financial protection to the parents or guardians of the child should the unimaginable happen. However, most top children’s life insurance providers offer a guaranteed insurability rider that allows the death benefit to be increased at certain policy years or when specific life events such as marriage or a child’s birth have occurred.

Disadvantages of Life Insurance Policies for Grandchildren

Buying a life insurance policy for your grandchild isn’t the right choice for all situations. There are benefits, but there are also some drawbacks you should be aware of. Disadvantages of life insurance policies for grandchild include:

Low death benefit amounts – As discussed above, there is a limit on how much life insurance you can buy for a minor child. Generally, the maximum coverage amounts range between $25,000 and $50,000. This likely will not be enough for your grandchild once they are in their adult years and need a much larger policy to cover their own family’s needs.

The cash value grows slowly – Life insurance policies build guaranteed cash value and accumulate interest. However, the interest is generally very low. It takes about 20 or more years for most policies before the cash value is equal to the overall cost invested in the coverage. Therefore, your money would grow much faster if you were putting contributions into a high yield savings account or other savings vehicle instead. 

The cash value is not significant – A lot of children’s life insurance policies are marketed for the cash value and how it can be used to help pay for expenses such as college. The thing is, the cash value is not significant at all. At most, the cash value will equal the death benefit of the coverage, but that won’t be until the end of the contract, which is often age 100.

Payments need to be made for decades – All life insurance policies are a long commitment. Children’s policies are always whole life policies and will need to be managed for decades to come. Should a future financial hardship occur, it could be difficult to make the payments.

Best Companies for Grandchildren Life Insurance Coverage

If purchasing a life insurance policy for your grandchild sounds like something you would like to explore further but are unsure which life insurance companies can offer the best coverage, we can help.

We originally put together a guide to children’s life insurance, where we narrowed down three companies in 2022 that offer the best individual children’s whole life insurance plans. That article also lists providers who accept child term riders if you are a grandparent who also needs life insurance coverage.

While we highly recommend that you take a look at that children’s life insurance article, we will re-cap the top three companies that offer life coverage to kids along with a look at what the life insurance coverage offers.

Best Overall: Mutual of Omaha

Mutual of Omaha and its Children’s Whole Life plan has been named our best overall choice for individual children’s life insurance coverage.

Our research and experience working with the life insurance provider have found that their child’s life insurance plan offers some of the most competitive rates making it affordable for parents and grandparents.

What will grandparents like about this life insurance coverage for their grandchildren?

• Simplified application that can be completed in minutes.
• Two medical questions on the application and no medical exam requirements needed.
• Guaranteed Insurability Rider that allows for the purchase of additional insurance without evidence of insurability on the insured child’s 25, 30, 35 and 40 birthdays as well as at certain life events. (Included with coverage)
• Death of Policy Owner Waiver of Premium Rider waives premiums for a 90-day period if the policy owner passes away allowing time for ownership to be transferred so coverage doesn’t lapse. (Included with coverage)
• Grandparents can purchase coverage without parents siganture on the application.

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2nd Place: Gerber Life

Our second-place runner-up is The Grow-Up plan offered by Gerber Life. The Grow-Up plan is probably one of the most well-known children’s life insurance options available. The company does a ton of marketing, and the iconic Gerber baby logo is far from being unrecognizable.

The Gerber Grow-Up plan is a great option for grandparents and can easily be a top choice to Mutual of Omaha, except that the premiums are slightly higher. However, as far as policy features go, we have to give Gerber Life and The Grow-Up Plan the better choice of the two options.

What will grandparents like about this life insurance coverage for their grandchildren?

• Simplified application that can be completed in minutes.
• Two medical questions on the application and no medical exam requirements needed.
• 10% premium discount if you have premiums auto-drafted from bank account.
• Coverage automatically doubles at age 18 with no increase to premium!
• Payment Protection Option Rider waives all premiums if the policy owner becomes totally disabled or dies before the insured child turns 21. (Rider cost extra to add)
• Guaranteed Purchase Option offers four additional opportunities to buy additional life insurance coverage (at certain ages and life events) without providing evidence of insurability.
• Limited payment options available.

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3rd Place: Globe Life

Our third life insurance option for grandchildren comes from Globe Life and its Young American Plan. Globe Life is well-known for senior final expense plans and children’s life insurance plans.

You may have even received a direct mailer from the insurance provider as they rely heavily on that marketing method and are really good at it.

While over-the-phone and online application options are available, Globe Life’s direct mail application method makes applying for coverage simple with a one-page application that can be mailed back to the company in a pre-paid envelope. If approved, Globe will mail a policy to your home.

The Young American Plan offered by Globe Life is a solid life insurance plan. However, it lacks options to increase coverage when the child becomes an adult, as both Mutual of Omaha and Gerber offer. In addition, the maximum coverage amount is limited to just $30,000.

On the other hand, a benefit to Globe Life and its grandchildren’s life insurance plan is that it is reasonably priced compared to Gerber Life and runs closer to Mutual of Omaha’s low rates. Another unique benefit is that the maximum issue age is 25 years old, which is much higher than any life insurance provider offering a child life insurance plan.

What will grandparents like about this life insurance coverage for their grandchildren?

• Simplified application that can be completed by telephone, online or mail.
• Two medical questions on the application and no medical exam requirements needed.
• Grandkids up to age 25 can get a policy with grandparents as the owner!
• For an extra $1 per month can add $20,000 accidental benefit coverage.

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Alternatives to Life Insurance Policies for Grandchildren

Grandparents looking to set their grandchildren up for a strong financial future have options beyond life insurance to consider. Some great alternatives include:

IRAs – A Roth IRA is a great savings vehicle, especially for a young child. A grandparent can start an IRA on a grandchild at any time. The child can then add to the IRA once they start earning their own money.

Custodial accounts – A custodial account allows you to put money into savings or investments for your grandchild. You can choose investments and build the account over time. You can also use your high yield savings to get even more for your money. The account and the money in it will be available when your grandchild is ready. You can gift the account to your grandchild when they turn 18 or 21.

529 college savings plans – 529 plans are designed to help with college savings. They’re a great bet If you want to help pay for your grandchild’s education. Plus, there are tax benefits to using these accounts to help pay for college. 

Naming your grandchild the beneficiary on your own life insurance policy – You can name your grandchild the beneficiary or one of the beneficiaries on your own life insurance plan. This can be a thoughtful way of leaving your grandchild an inheritance when you pass away. 

Transferring your own whole life policy to your grandchild— You can transfer your own policy to your adult grandchild. They could then become both the policyholder and the beneficiary of your policy. In addition, they could borrow against the cash value if needed and would receive the death benefit if you passed away.

A financial planner can help you decide which option is best for your financial situation and for your grandchild. But, of course, no one answer is right for every family and every scenario. After all, a grandparent with one grandchild might need to make different choices than a grandparent with a dozen grandchildren. Similarly, you might have different considerations if you also have great-grandchildren or if your children are far apart in age.

For instance, let’s say you have a son with two children who are 3 and 5, and you’re considering life insurance or another financial product for them. If your son was an only child who said he wasn’t planning to have more children, you might feel confident budgeting money for your two grandchildren.

However, let’s say your son was the oldest of three and that his younger siblings were only teenagers. In that scenario, your budget would be much less certain. If you know your budget, you might choose a product such as life insurance with set monthly payments. If you don’t, a product such as a custodial account might be a better bet.

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Frequently Asked Questions About Grandchildren Life Insurance

As we get close to wrapping up our guide on buying life insurance for a grandchild, we have put together a great frequently asked questions section. To make this section even greater, please add to it by asking us any questions about grandchildren’s life insurance that we may have missed out on answering.

We will be sure to get you an answer, and if we think it will also be beneficial to our community, we will be sure to add it to the FAQ section of this article.

Who is eligible to buy a life insurance policy on a child?

In general, purchasing life insurance on anyone other than yourself requires an insurable interest in the life of the insured individual. That means that if the insured were to pass away, the policy owner would be negatively impacted by their death.

When it comes to children, grandparents qualify as having an insurable interest in their grandchildren’s lives and therefore meet insurable interest guidelines. 

Grandparents can, in most cases, purchase life insurance on their grandchild without any involvement of the parents or a parents consent. Nor are they required to notify the parent that they purchased coverage on the child at any time after the child has been approved and the life insurance policy has been issued.

Other individuals that meet insurable interest in owning a life insurance policy on a child include:

• Parents of the child
• Stepparents
• Legal guardians
• Great grandparents

If you are not one of the above-named individuals, this insurance company will question the insurable interest connection. If there is no qualifying connection, you will not be eligible to own a policy on the child.

What if my grandchild has a pre-existing health condition?

Your grandchild will not be required to complete a medical exam, and most applications only consist of answering two simple health questions. However, it’s important to understand that approval for coverage is not guaranteed.

Depending on the type of pre-existing health condition and the severity of the medical condition, an application for coverage could be declined.

Most grandchild life insurance applications will want to know if the child has a high-risk medical condition. If your grandchild does have a high-risk health condition, the insurance provider will want you to provide details of diagnosis and treatment history to determine if approval can be made.

Below are the two health questions you will see on the applications from our top three best children providers:

Mutual of Omaha

Have any of the Proposed Insureds been diagnosed or treated by a licensed member of the medical profession for:

• A heart or circulatory system disease, birth defect, or mental or developmental disorder including autism and Down’s Syndrome?
• Any other chronic medical condition which has required care within the past three years?

Gerber Life

• Were any children born prematurely or with abnormalities at birth diagnosed by a medical professional?
• Within the past five years, have any of the children listed above been treated or diagnosed by a physician for a respiratory disorder, heart disease or disorder, mental disease or disorder, or any other impairments or diseases?

Globe Life

• Within the past three years, have the proposed insured had a chronic illness or condition which requires periodic treatment?
• Has the proposed insured ever been medically diagnosed or treated by a Physician for Acquired Immune Deficiency Syndrom (AIDS)?

If you have answered “yes” to a health question listed on the application, it does not automatically disqualify your grandchild from receiving a policy. However, as mentioned, underwriting will need details of the condition to help determine if they can decide for approval. 

Is whole life insurance the only option for my grandchild?

In most cases, whole life insurance will be the most common option for purchasing individual life insurance coverage for your grandchild. However, if you need your own life insurance coverage, you may have the option to add your grandchild to your policy as a child term rider.

The child term rider will provide your grandchild with their own temporary life insurance coverage up to age 25 (depending on the provider) or up until the end of your contract, whichever occurs first.

Best of all, most child term riders allow for the temporary coverage to be converted into a permanent plan of the child’s own without having to go through any medical underwriting.

Individual term life insurance plans are generally not available to children. This is because most term insurance plans have a starting death benefit of $100,000, which in the view of an insurance company, does not often make financial justification for a child to have.

How long does it take to get life insurance coverage for my grandkid?

Getting a life insurance policy for your grandkid shouldn’t take long at all. Since there are no medical exam requirements and an application that can be completed in minutes, most approvals can be done in 1-3 days. 

If you want a policy quickly, we highly recommend working with an agent and completing an electronic application that can be done online. We tend to see electronic applications either provide an instant approval or get in the hands of an underwriter quicker for review. All three of the companies in our best list all offer an online electronic application process.

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Final Word

Grandparents, a children’s life insurance plan is a great way to provide your grandchild a head start to having a financial nest egg. Plus, having a plan in place will provide peace of mind knowing that should the unimaginable occur, you and your loved ones will not be left with a financial burden of paying for funeral costs.

At No Medical Exam Quotes, we specialize in children’s life insurance plans. We offer both Mutual of Omaha and Gerber life insurance plans and can you with quotes and the application process.

We can also help assist you with your life insurance needs and explore child rider options that are offered on most term life insurance plans. In addition, you can use our quick form to get no-obligation quotes from the best non-medical life insurance companies.

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