How much money can you put into a life insurance policy on your child? Start with a different question: how much death benefit can the child qualify for? With a child, carriers look at the parents. In my experience, most will approve a child for about half of the death benefit the parents carry. If the parents have $4 million of coverage, a child can often get about $2 million. Rules vary by carrier, so treat half as a common rule and check your carrier's.
That death benefit matters because it sets the MEC limit, the most premium the policy can take before the IRS treats it as a modified endowment contract, or MEC, and taxes loans and withdrawals differently. So a bigger death benefit gives you more room to put money in. I've set up whole life policies with $2 million death benefits on children where the family puts in $20,000 to $24,000 a year, about $2,000 a month.
For adults, the ceiling usually comes from income. Carriers typically allow a death benefit of some multiple of your income, as high as about 30 times for younger adults, on the idea that the coverage replaces what you'd have earned. A child has no income, so the parents' coverage stands in for it. That's one more reason to get your own coverage in place first. It protects your family, and it sets how much you can do for your kids.
You don't have to fund anywhere near the ceiling. For a 12- or 13-year-old, an IUL, which means indexed universal life, can be designed starting at about $100 a month to build cash value the child could draw on in retirement, because the child has 50 or 60 years of compounding ahead. Drawing on it later usually means policy loans, which reduce the cash value and death benefit until they're repaid. I put the equivalent of about $250 a month into the policies on each of my two daughters. Numbers like these come from illustrations, which are projections and not promises, and index credits aren't guaranteed.
There's a longer game here too. As a funded policy grows, its death benefit usually grows with it. By the time your child is 30 and has kids of their own, the policy you started might carry $3 million or $4 million of death benefit, maybe more. That coverage can support large policies on their children, even before their own income would, and the same thing can happen again in the next generation. A viewer asked me how much life insurance you can get on a child, and the generation-to-generation idea is where my answer ended up.
Carriers will want a parent's consent, and most check the parents' own coverage before they approve a child. What a policy on your kid is actually buying covers the other benefits, and grandparents, you can start the policy yourself covers who can own it. Size the premium to what you could still pay in a tight year, since a child's policy does its best work when it keeps getting funded for a long time.
Before you ask for a quote, ask your agent what share of the parents' coverage your carrier allows for a child. Then pick a premium you could keep paying in a lean year, and start there.