Opening an indexed universal life (IUL) policy for a child at an early age gives it decades of extra time for cash value to grow, potentially turning it into a source of money for college, a future business, or even a head start on retirement.
Why Starting Early Makes a Difference
An IUL's cash value growth depends on time, not just how much is contributed. The more years a policy has to grow, the bigger the cumulative effect can be. That's why opening a policy for a baby or young child can produce very different results than opening one in adulthood.
Illustrative Example of Growth by Stage
In one hypothetical example, parents open an IUL for their 2-year-old with a $250,000 death benefit and a $150 monthly premium. An illustration projects $71,400 by age 20; $113,954 by age 24; $185,700 by age 30; and, if the cash value is never used, up to $1,718,657 by age 65. The parents' total contribution over 22 years would be $36,000.
Example projection by age
Hypothetical values mentioned in the article; they are not a guarantee.
Hypothetical example for illustrative purposes only. Results are not guaranteed and depend on the product, the insurer, its charges, and current rates. Restrictions apply.
Common Uses for Cash Value Throughout a Child's Life
- College: a complement to scholarships or loans, without the same rules as a 529 account.
- A first business or investment: possible seed capital in early adulthood.
- Lifelong protection: coverage that started while the insured was young and healthy.
- Supplemental retirement: if unused, the value can keep growing over the long term.
Frequently Asked Questions
Can I open an IUL for a child of any age?
Insurers set minimum ages, commonly starting just days after birth. The younger the child, the more time the policy has to grow.
What happens if I need the money sooner than planned?
Cash value can generally be withdrawn or borrowed against, subject to the policy's rules. Doing so may reduce future growth and the death benefit.
Does the child become the owner of the policy at some point?
Ownership can be transferred to the child once they reach the age of majority, depending on how the policy is structured and the insurer's rules.
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