Insuring Your Children: Starting Early

Most parents insure themselves. They understand the value of protecting their income and providing for their family’s future.

Few think to insure their children.

This is a missed opportunity. Starting a life insurance policy on a child offers advantages that no other financial vehicle can match. It’s not about the death benefit. It’s about guaranteeing insurability and creating a capital base that compounds for nearly two decades before they need it.

When you buy life insurance on yourself, you’re solving today’s problems. When you buy life insurance on your child, you’re solving problems they don’t even know they have yet.

The Gift of Guaranteed Insurability

Life insurance is available to healthy people. This sounds obvious until it isn’t.

Your child is healthy today. They may not be healthy at 25, 35, or 45. Diabetes, cancer, heart conditions, autoimmune disorders—these can develop at any age. Once they do, traditional life insurance becomes expensive or impossible to obtain.

Starting a policy at birth locks in insurability for life. No matter what health challenges arise later, your child will always have access to life insurance. The policy you start today becomes the foundation for additional coverage they can add as adults.

This guarantee has monetary value. But more importantly, it has peace of mind value.

Consider the alternative. Your child develops a chronic condition in their twenties. They want to start the Infinite Banking Concept, but they can’t qualify for new coverage. The window has closed.

With an early policy in place, the window stays open forever.

Eighteen Years of Uninterrupted Compounding

Time is the most powerful force in finance. Not returns. Not contributions. Time.

When you start a policy on a newborn, you give that money 18 years to compound before your child needs capital for college, business, or their first home.

Eighteen years. No withdrawals. No market crashes. No government policy changes. Just steady, predictable growth year after year.

Nelson Nash understood this principle deeply. In “Becoming Your Own Banker,” he demonstrates what happens when you prioritize time over everything else.

A grandparent invests $2,000 per year for 22 years in a policy for their grandchild. By age 22, the policy has $100,000 in cash value. By age 70, with no additional activity, it grows to approximately $4 million in cash value generating $225,000 per year in dividend income.

The power isn’t in the $2,000 annual contribution. The power is in starting at age zero.

Compare this to starting at age 22. To achieve the same result at age 70, the contributions would need to be significantly higher. Time lost cannot be bought back with bigger payments.

This is why wealthy families start policies on children as soon as possible. They understand that the earlier you start, the less money you need to achieve substantial results.

What $100,000 at Age Eighteen Looks Like

Picture your child at 18 years old. Most teenagers are financially dependent, working part-time jobs, worried about college debt.

Your child has $100,000 in accessible cash value.

This changes everything.

They can access this capital for college without taking student loans. They can start a business without seeking investor approval. They can travel, invest in real estate, or pursue opportunities that require upfront capital.

The flexibility is extraordinary. Unlike a 529 plan that locks money into education expenses, the cash value in a life insurance policy can be used for anything.

Your child wants to skip college and start a business? They have the capital.

They want to attend an expensive university? They can access funds without debt.

They discover a once-in-a-lifetime investment opportunity? They have liquidity available immediately.

The policy doesn’t just provide money. It provides options.

And because policy loans don’t require qualification or approval, your child has guaranteed access to this capital whenever they need it. No credit checks. No employment verification. No explaining their plans to a loan officer.

This level of financial independence at age 18 is remarkable. But it’s only possible if you start the policy early enough to allow for adequate compounding.

529 Plans vs. Infinite Banking: A Side-by-Side Comparison

Parents often choose between 529 education savings plans and life insurance policies for their children. The comparison reveals stark differences in control, flexibility, and long-term value.

Control and Ownership

529 plans are government-sponsored programs. The rules are set by bureaucrats and can change at any time. Contribution limits, withdrawal rules, and qualified expenses are all subject to legislative modification.

Life insurance policies are private contracts. The terms are guaranteed and cannot be changed by government action. You control the timing and amount of contributions. You control when and how the money is accessed.

Flexibility of Use

529 funds must be used for “qualified education expenses.” Use the money for anything else, and you pay taxes plus a 10% penalty on the earnings.

Policy cash value can be accessed for any purpose without penalties. Education, business, travel, real estate, emergencies—all are valid uses. The money adapts to your child’s needs rather than forcing their needs to fit the money’s restrictions.

Tax Treatment

529 contributions may provide state tax deductions, but withdrawals for non-education purposes trigger taxes and penalties. Future tax law changes could affect these benefits.

Policy cash value grows tax-deferred and can be accessed through policy loans without creating taxable events. This tax treatment is built into the insurance code and has remained stable for over a century.

Growth Characteristics

529 plans typically invest in stock and bond portfolios. Returns fluctuate with market conditions. Account values can decrease, especially near the time when funds are needed.

Policy cash values grow at contractually guaranteed rates plus dividend participation. Growth is predictable and protected from market volatility. Values only move in one direction: up.

Long-term Value

529 plans are designed to be spent down for education. Once the money is used, the account closes.

Life insurance policies provide lifetime value. After accessing cash value for college, the policy continues growing. It provides capital for future opportunities and eventually passes substantial death benefits to the next generation.

The True Cost of College Education

Nelson Nash had strong opinions about higher education. Not because he opposed learning, but because he understood the economic distortion created by government subsidies.

Nash applied Parkinson’s Law to college education: expenses expand to consume available subsidies. When the government makes easy money available for college, universities raise prices accordingly.

The result is an educational arms race. Everyone “needs” a college degree, which drives up demand. Universities respond by adding administrators, building elaborate facilities, and inflating costs far beyond the rate of general inflation.

Students graduate with massive debt loads that follow them into their thirties. Instead of building wealth in their twenties, they’re paying off educational expenses.

Nash calculated what happens when you redirect college money into a life insurance policy instead. Take $20,000 per year for four years—typical college costs in his era. Rather than spending it on education, fund a life insurance policy.

The results were startling. With no additional premiums, no loans, and no financing activity, the policy grows to approximately $2.4 million in cash value by age 70, generating $145,000 per year in passive dividend income.

Today’s college costs are roughly double Nash’s numbers, making the opportunity cost even more dramatic.

This doesn’t mean college is always wrong. It means parents should consider the full economic picture when making education decisions.

A child with substantial cash value has choices. They can attend college debt-free, start a business, or pursue alternative education paths. The capital provides freedom to make decisions based on merit rather than financial constraints.

Building the Foundation Early

Starting early requires discipline and long-term thinking. The benefits aren’t immediately visible. Unlike investing in stocks where you can check daily values, policy cash values build slowly and steadily.

But this apparent disadvantage is actually a strength. The money grows without the psychological temptation to constantly monitor or second-guess decisions. It’s out of sight but working consistently.

The key is starting with appropriate premium levels. Too low, and the policy won’t build sufficient cash value. Too high, and you risk creating a Modified Endowment Contract that loses favorable tax treatment.

Working with an experienced agent who understands policy design is essential. The goal is maximizing cash value accumulation while maintaining the policy’s life insurance status.

Premium levels should also fit comfortably within your current budget. Remember, you’re committing to payments for many years. Better to start conservatively and add additional policies later than to start aggressively and struggle with payments.

Beyond the Numbers: Teaching Financial Principles

A child’s policy provides more than financial benefits. It becomes a teaching tool for sound money principles.

As children grow older, they can see how their policy values accumulate. They learn about compound interest, dividend payments, and the difference between saving and speculation.

They understand that building wealth requires patience and consistency. They see money growing without the dramatic ups and downs of stock market investing.

Most importantly, they learn that they can be their own source of financing. When they need capital for opportunities, they don’t automatically think about banks or credit cards. They think about their policy.

This mindset shift is invaluable. It creates financially independent adults who understand capital formation and aren’t dependent on external financing sources.

Options, Not Obligations

When you start a life insurance policy on your child, you’re not predetermining their future. You’re expanding their options.

They may choose college. They may start a business. They may travel the world or pursue artistic endeavors. The policy adapts to whatever path they choose.

This flexibility becomes more valuable as economic uncertainty increases. Traditional career paths are less reliable than they once were. Having access to capital provides security in an uncertain world.

Your child may face opportunities or challenges you can’t imagine today. But whatever they face, they’ll face it with more resources and more options because you had the foresight to start their policy early.

The gift isn’t just money. It’s freedom.

Looking Forward

Starting a policy on a child requires thinking in decades, not years. You’re making a decision that will impact their entire financial life.

The earlier you start, the more time you harness for compounding growth. Every month you wait is a month of compound interest you can never recover.

If your child is already older, don’t let perfect be the enemy of good. A policy started at age 5, 10, or 15 still provides significant advantages over waiting until adulthood.

The goal isn’t to time the market or optimize every variable. The goal is to start the compounding process and guarantee your child’s insurability while they’re healthy.

Years from now, when your child has choices that their peers don’t have, you’ll understand the true value of this decision. You didn’t just buy life insurance. You bought options, flexibility, and financial independence.

That’s a gift that keeps giving for a lifetime.