Buying life insurance with your children as the insured is a question often asked by young couples. There are advantages to insuring the kids, as well as disadvantages.

Advantages

Guarantee their good health
Most quality life insurance company's have riders that allow insureds to increase the death benefit at later dates and ages without having to prove medical insurability. What this means is that a $100,000 policy on an infant, could turn into a $500,000 or more by the time they're 30 depending on the Guaranteed Insurability Rider that is offered by the insurance company. Typical 'option dates' (when insureds can increase the policy) via a standard rider are marriage, birth or adoption of a child, and usually every few years between the ages of 21 and 40.

Build Tax Advantaged Savings
Portions of every premium payment of a whole life insurance policy build cash value. That cash value grows tax deferred. What that means is that no taxes are owed on the interest and dividends generated while growing inside the policy. Because insurance costs for minors are so low, cash value builds significantly and very quickly. Equity inside whole life contracts can be loaned and/or withdrawn for any reason the owner of the policy desires. Things like college tuition, down payment on a first home, and getting a small business started are great ideas to use the cash value that has been building for many years when life insurance is purchased on a minor. The values are accessible without penalty and, if structured properly, can be distributed on a tax-free basis.

Protect Against The Unthinkable
It's every parent's worst nightmare...the loss of a child. I can't imagine. As devastating the death of a minor child is, disregarding the financial impact can be a mistake. Although expensive, it's not the cost of the funeral that can bankrupt families. It's the residual impact of the emotional loss. The question becomes, how much work will a parent or both parents miss after the loss? When they return to work, how effective and productive will they be? What's the concentration level? It's likely employers will be understanding, but for how long?

Disadvantages

Budget Priorities
Simply, the biggest disadvantage of starting a whole life program on a minor is the opportunity cost. While premium charges for kids are very low, committing to a few hundred dollars per year (or whatever the annual premium is) may or may not be the best use of those funds. The concept of insuring children is sound, however saving for retirement or other needs should be considered.