A life insurance contract purchased on a child, often by a parent or grandparent, is a financial product designed to provide a death benefit should the child pass away. These policies accumulate cash value over time, growing tax-deferred. For example, a parent might purchase a whole life policy on their newborn to secure a low premium rate that will remain constant throughout the child’s life.
This type of policy can offer several potential advantages. Besides the death benefit, the accumulated cash value can be accessed later in life for needs such as college expenses, down payments on a home, or even retirement income. Historically, such policies were seen as a way to ensure insurability for the child later in life, guaranteeing coverage even if the child develops health issues that could make obtaining insurance difficult or expensive in adulthood.
