IBC 201: Life Insurance for Children and Grandchildren

Are you already a few years into your first IBC policy, and you’ve experienced the power of storing cash in a policy? Maybe now, you want to store more cash. Is it time to start another policy? Should you insure yourself, your spouse, kids, or grandkids? Why? How does it work when you build a system of policies? Should you even have life insurance for children?

Today, we’re continuing the conversation in our series about how to take your Infinite Banking to the next level. Last time, we dug into how to maximize your current Infinite Banking Policy. We’ll talk about private family banking and insuring other family members, like spouses, kids, and grandkids. In our third and final part, we’ll talk about managing multiple policies.

So if you want to hear about what to do after your first whole life insurance policy is performing well… tune in now!

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Life Insurance Isn’t Just About Death

We hear it all the time—“I don’t want to think about death.” This can be especially true when life insurance for children enters the discussion. However, life insurance isn’t just about death. When used correctly, it can provide liquidity and certainty… and peace of mind.

It might also surprise you to learn that cash value life insurance is useful in teaching children good money habits. This is a key in family banking strategies and building generational wealth.  If you’re skeptical, we understand—and that’s exactly why we’re going to be digging into the topic today. 

How to Reframe Your Insurance Mindset

Today, most financial planning involves saving for a future goal—retirement, college, etc. In turn, this often means locking money up in qualified plans like a 401k or 529 plan, where it’s inaccessible for long periods of time. While saving is better than the alternative, the problem is that these accounts offer little flexibility. And what is life if not an exercise in flexibility? 

After all, things happen all the time that we cannot predict—unexpected medical expenses, job loss, and economic crises, as well as investment opportunities, extra vacation time, and more. But what happens when you don’t have the capital? Unfortunately, you have to make sacrifices or pass up on rare opportunities. 

Cash-value life insurance—and in particular, infinite banking strategies—offers a solution. It gives individuals and families a way to save money without locking those dollars away. The cash value component is liquid and out-earns typical savings accounts. And, you can use the money at any time, for any reason. This means that you can cover unexpected emergencies and opportunities. 

Yes, there’s a death benefit, but there are living benefits too. And while thinking about death can cause a lot of emotions to bubble to the surface, it’s an event none of us can avoid. Thinking about it as a logical protection mechanism, rather than an omen, can help you combat any misgivings. And in the long run, you’ll have financially prepared your loved ones for what will be a difficult time. 

Building a Portfolio of Policies

Over the course of your life, you’ll likely be entitled to more insurance. In the first part of our IBC 201 discussion, we talked about the importance of insuring up to your Human Life Value. This will change over the course of your life. The tricky part of building an IBC portfolio is knowing who to insure, at what time, and in what order.

If‌ ‌you’re‌ ‌considering‌ ‌another‌ ‌life‌ ‌insurance‌ ‌policy,‌ ‌you‌ ‌can‌ ‌own‌ ‌a‌ ‌policy‌ ‌on‌ ‌someone‌ ‌other‌ ‌than‌ ‌yourself.‌ ‌This‌ ‌means‌ ‌that‌ ‌while‌ ‌you‌ ‌may‌ ‌make‌ ‌the‌ ‌premium‌ ‌payments,‌ ‌the‌ ‌death‌ ‌benefit‌ ‌is‌ ‌tied‌ ‌to‌ ‌someone‌ ‌other‌ ‌than‌ ‌yourself.‌ ‌You‌ ‌may‌ ‌wonder‌ ‌why‌ ‌you’d‌ ‌want‌ ‌to‌ ‌insure‌ ‌other‌ ‌people,‌ ‌or‌ ‌even‌ ‌how‌ ‌you‌ ‌would‌ ‌be‌ ‌able‌ ‌to. So let’s talk about the reasons why, and why not, to have life insurance for children or grandchildren.

Each policy within your growing portfolio can play a different role. One might be designed primarily for protection, for example, while another might focus on building cash value for liquidity. A third may exist purely to leave behind a financial legacy. 

Rather than viewing multiple policies as redundant, it helps to see them as parts of a system, each one tuned for a specific outcome.

For a more comprehensive view on how to structure your policies for long-term use and flexibility, see IBC 201: How to Maximize Your IBC Policy.

What is the Benefit of Insuring Yourself First?

The first, and most “logical” reason to insure yourself first, is based on actuarial data. In other words, you’re more likely to pass away before your children. You’re older. So if you’re looking to protect your income or leave a legacy to your children, it makes sense to insure yourself first. If you’re married, the order of insurance may change depending on your spouse’s age. 

With this type of policy structure, you’re helping the wealth continue to flow from one generation to the next. 

Order of Insurance

One question that frequently comes up is how to allocate premium dollars. For example, if a family has about $40,000 to put into insurance premiums each year, is it more efficient to have one policy with a $40k premium, or two policies on two people with a $20k premium each? In most cases, people hope that by insuring their children with that $20k, they’ll be able to accumulate more cash value because their insurance costs less.

Unfortunately, that is not how policies on children work. Actuaries do very careful calculations on life expectancy to design policies. Endowment is the age at which the policy will pay out if the insured is still alive. It is at this point that the cash value will equal the death benefit (both of which are increasing values). Therefore, children don’t participate in as many dividends because they have much longer for their policy to endow.

The bottom line is that there may not be a better cash accumulation in the short term, even though they might be able to accumulate more over the course of their life. If you’re intending to leave a legacy to your child, there’s more benefit in starting a larger policy on yourself today and insuring your child at a later date, or at a lower death benefit.

Are You Insurable?

A major factor in any life insurance decision is answering the question: Are you insurable? Insurability depends on a number of factors that help a life insurance company determine whether you are an acceptable risk for them to take. The largest factor in this equation, of course, is health. 

A benefit to insuring your children is to lock in their future insurability. Because you never know when that door will close. The same goes for you and your health. This is one reason that it’s important to acquire insurance as early as you can. Just as we don’t truly know when we will die, we also don’t truly know what our health will look like in the future. 

If you’re seeking additional insurance for yourself in the near future, it can be a good idea to have some convertible term insurance. This type of insurance is not permanent, but can later be upgraded to permanent insurance without needing to re-qualify. This can help protect your insurability against future illness or disability. 

Children under seventeen, however, don’t have to take any paramedical exams to qualify for insurance. They need only fill out a health questionnaire. (There are some extenuating circumstances if there’s a red flag in the questionnaire.) This can be a great way to lock in insurance.

Should You Have Life Insurance for Children?

There are numerous reasons to insure your children or grandchildren; however, it comes down to your family dynamics and goals.

Having a policy can help you teach children good savings habits, and how to borrow and pay back loans. Children with a job or an allowance could pay back policy loans and practice “pitching” for reasons to borrow against their cash value. It’s important to note, however, that this can also be accomplished with a policy you have on yourself if your intention is to create a family banking system.

One benefit of insuring your child is that you can transfer ownership of the policy to them when they’re an adult. They become responsible for making premium payments and managing policy loans, and they have a head start on savings. The only thing you cannot do is change who is being insured by the policy. 

Ultimately, however, we believe that it’s important to insure up to your full human life value to get the full benefit of insuring your children. Even if it’s through a mix of whole life insurance and term insurance. That way, you can leave a greater death benefit for them, so that they can purchase additional insurance on themselves.

How to Insure Your Grandchildren

Insuring your grandchildren is a bit more complicated than insuring your children, because there is an additional layer. While there are some differences between companies, in general, the grandparents usually need to have a policy on their children in order to also insure their grandchildren. 

The most common reason for insuring grandchildren is to give them the gift of a cash value policy. It allows the money to grow the cash in a safe and secure way, while also allowing the grandchild to assume ownership of the policy at some point. This is a great way for grandparents to contribute to a college education or a wedding fund in a way that isn’t correlated to the stock market.

Starting a Life Insurance Policy for Grandchildren

When starting a life insurance policy for grandchildren, the first step is selecting a participating whole life policy from a mutual company. These policies are built to last, and their guarantees make them ideal for long-term planning.

Next, you will need to decide who actually owns the policy. Often (but not always), the grandparent is both owner and payer in the beginning, while the child is the insured party. 

Ownership can later be transferred to the parent or grandchild. You should also choose the beneficiary, typically the grandparent or parent, while the policy is in their name.

Remember, the policy should be funded with maximum flexibility in mind. Overfunding up to MEC limits can allow the policy to build stronger cash value early on. This gives the grandchild a head start and the flexibility to use that capital later in life.

There are also life insurance tax implications worth considering. If the grandparent pays premiums as gifts, it may fall under the annual gift exclusion. In 2025, this is $18,000 per recipient, meaning the premiums on a life insurance policy for grandchildren can often be gifted tax-free.

How Do You Know What’s Right for You?

The fastest way to build an IBC portfolio that works for you is to sit down with an expert to discuss your goals and what you want to do with your money. That way, you can tailor your policies to your unique circumstances. It’s also a good idea to try calculating what your human life value is, roughly. That way, you can see the full scope of what you’re working towards with your insurance portfolio.

Find Your Human Life Value

Your Human Life Value (HLV) represents the economic worth you bring to your household over your lifetime. It helps determine how much life insurance coverage you truly need, and not just to cover funeral expenses or short-term bills, but to replace your income and protect your family’s long-term financial stability.

Find out what Human Life Value is and how to determine yours in our dedicated guide.

Planning for Generational Impact

Understanding your HLV isn’t just about protecting the present; it also helps you support future generations. When each family member is insured based on their Human Life Value, every policy contributes to a cycle of wealth protection and transfer. 

It means your family won’t just survive financially if the unexpected happens; they’ll have a solid foundation to build upon. This is a key principle behind using life insurance as a tool for multi-generational wealth.

Book A Strategy Call

Do you want to coordinate your finances so that everything works together to improve your life today, accelerate time and money freedom, and leave the greatest legacy? We can help!  

Book an Introductory call with our team today to learn how Infinite Banking, alternative investments, or cash flow strategies can help you accomplish your goals better and faster.

That being said, if you want to find out how our privatized banking strategy gives you the most safety, liquidity, and growth and boosts your investment returns, read our free privatized banking guide to learn more and guarantee a legacy.

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