This cartoon baby's life insurance policy is a poor investment of money that could help finance the baby's education.

Is children’s life insurance a smart investment for your family? As we previously wrote in the Hawkins Elder Law Blog (, a life policy is an important safety net for some people. However, this article explains why life insurance for children may be a poor investment.

Life Insurance Purpose and Investment Performance

Life Insurance Purpose

A life policy can help replace a dead breadwinner’s income to help the policyholder’s children endure income loss more easily. Young children don’t usually earn much income, so the income replacement purpose does not apply to kids’ life insurance policies.

Children’s Life Insurance Investment Performance

Life insurance policies for children are not sensible investment options. Traditional policies grow at a fixed rate, while variable policies are tied to an investment portfolio’s performance. Regardless, a diversified investment portfolio or even some high-yield savings accounts may outperform these policies’ returns. Plus, high inflation rates undermine fixed-rate and variable policies’ growth performance.

Administrative costs consume significant portions of the insurance premiums. In comparison, low-cost index funds or exchange-traded funds (ETFs) generally have lower fees and may provide better returns.

Funding College Savings with Life Insurance Policies

Some agents suggest buying life insurance for children to fund their college costs. However, dedicated college savings plans like 529 college savings plans and Coverdell Education Savings Accounts offer state income tax deductions and tax-sheltered growth.

Children’s Life Insurance Policies’ Poor Odds

Consider the risk factor before insuring a child’s life. While a child’s death is tragic, a child’s death is statistically unlikely. Those bad odds make life insurance for children unjustifiable.

Exposure to Nursing Home Costs

When elderly parents need nursing home care, long-term care costs often push them to surrender life insurance policies for their cash values. So, holding their children’s life insurance policies is like burning money as fireplace kindling in those cases.

Probate Estate Administration

Although effective estate planning would help, children’s life policies are often tied up in their deceased parents’ estates.


See more discussions of life insurance and other investment alternatives at:


Jeff and Jennifer are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers. They are also active members of the Indiana State Bar Association and the Indiana Chapter of the National Academy of Elder Law Attorneys (NAELA). Jeff is also a member of the Illinois NAELA Chapter.

Both Hawkins are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois.

Jeff is a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation. He is also a member of the Illinois State Bar Association, and he served as the 2014-15 President of the Indiana State Bar Association.

Find more information about these and other topics at You can also call us at (812) 268-8777.

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