Juvenile life insurance, like all life insurance, is regulated by each state's department of insurance. However, most states follow certain same guidelines in terms of the amount of life insurance that can be purchased for a minor and who can purchase it. Individual policies and riders (additions) also can be added to a parent's policy that cover children as well.
Life Insurance Overview
Two basic types of life insurance are available: permanent and term. Permanent life insurance is life insurance that's designed to be in place for your lifetime; this includes whole life and universal life. Whole-life policies have a level premium and accumulate cash value (savings) within the policy that can be borrowed against. Universal life has flexible premiums and can accumulate cash value that you can borrow against or withdraw. Term insurance has a level premium for a period of time (five or 10 years or more) and no cash value. Juvenile policies are whole life or universal life. Occasionally policies are term insurance while they are a minor and convert to whole life at maturity (age 18).
Who Can Purchase
Since minors can't enter into insurance contracts, juvenile life insurance policies can only be purchased by an adult with insurable interest. Typically, this is only the child's parents or legal guardians (guardianship must be supported with court paperwork), although close relatives may be able to purchase a policy with a parent/guardian's written permission. Juvenile policies may revert to the insured child at age 18 or 21, depending on the insurance contract. These restrictions are in place to prevent fraud.
Amount of Insurance
In another measure to prevent fraud, states and insurance companies limit the face amount, or death benefit, of policies on juveniles. In New York, for example, if a child is under age 14 1/2, the maximum amount is the greater of $50,000 or half the face amount of the applicant's (the person purchasing the policy on the minor) total life insurance coverage. If the minor is 4 1/2 or younger, the maximum is the greater of $50,000 or 25 percent of the applicant's total life insurance.
States and insurance companies also look at the stated reason for purchasing life insurance. For minors, the reasons are typically final expenses, college savings and protecting future insurability in case of a serious health condition. Some states may also require a minor child's signature if they are over a certain age (15 in Washington State, for example). In Washington, the policy face amount also can't exceed the household's total annual income.