A policy started on a child at three has ten or fifteen years of cash value by the time that child wants a car, a laptop, or a plane ticket to something that matters to them. Most parents keep paying the premium and never let the kid near it. That's a missed lesson, and the policy is one of the few places to teach it with real money and a consequence that isn't dangerous. What the policy was buying all along is in what a policy on your kid is actually buying.
Legally, the parent owns the policy until the ownership is transferred, so the parent takes the loan. Sit down with the kid, name the amount, and set the terms the way a bank would: the rate, which you can set at the carrier's loan rate so it's real, the monthly payment, and the date it's done. Write it on one page and both of you sign it. Then take the loan from the carrier and hand over the money.
The kid pays you, and you pay the carrier. Every payment goes into the online portal against the loan the same week it comes in. So the kid can see the loan balance on the statement fall with their own money. A lecture about compound interest doesn't stick. A $1,200 loan that took eleven months of Saturday shifts to pay off does.
What the kid learns, in order. That the money came from something they own, not from you. That a loan has a rate and the rate is real. That paying it back on a schedule restores the room to do it again. And, if a payment gets missed, that the interest keeps going whether or not they do, which is the lesson most adults get from a credit card at 24 instead of a policy at 16. While the loan is out, the death benefit and the available cash value are lower by that amount, one more line to show them on the statement.
Keep the loan small relative to the cash value, well under the available loan value, so a missed payment or two can't threaten the policy. Don't forgive it. If the kid can't pay, restructure it with them, longer term and smaller payment, and keep the paper. And don't lend for spending that vanishes. A car they'll drive to work, a laptop for school, a certification course: things that pay back. A concert weekend doesn't qualify, and saying so is part of the lesson.
When the ownership transfers at 21 or 25 (the handoff itself is in handing the policy to your kid later), they'll be handed a policy with a clean loan history and a habit that took years to build. Start the first loan the year they have a job to pay it back with.