Identification

• An insurance company wants to make sure that the insurance policies it sells are used for the intended purpose. In other words, life insurance policies are to be used to protect the lives of the individuals you leave behind. But, life insurance companies also understand the complex nature of families and that not all families are blood-related or consist of immediate family members. An insurance company therefore requires only an insurable interest in the life of the person you are insuring. An insurable interest refers to the idea that the life you are insuring has a personal and financial value to you. If the insured person were to die, you would be personally injured or affected in some way.
  
  

Benefit

• If you have permanent legal guardianship over a child, an insurance company generally allows you to purchase life insurance on the life of the child. This is especially true if the child is financially dependent on you for survival. In this case, the child is treated as any other dependent, and you may purchase life insurance on him as though he were your child.
  
  

Limitation

• You may not be able to purchase life insurance on a child that you do not have permanent legal guardianship over unless you are in the process of obtaining such guardianship. Also, once the child reaches age 18, the insurer may restrict your ability to purchase life insurance on the child. The reason for purchasing the policy actually helps determine if the insurer will allow the insurance policy to be purchased.
  
  

Consideration

• Purchasing life insurance on a child that you have permanent legal guardianship over may provide many benefits to both you and the child. First, you gain the financial security of being able to pay for any funeral costs in the unfortunate case that the child predeceases you. However, the child is benefited in cases when you purchase a permanent life insurance policy through the accumulation of the cash value reserve account. This money can be an important asset for the child as she grows up, since it provides her with money for her first car, college education and even a down payment on a home.