Jul 2, 2025
Picture this: you’re in the throes of raising a child, spending your day managing a playful toddler, when your mom sends you a text message asking for the baby’s Social Security number. Without giving it much thought, you text back and give it to her.
But then a week later, you’re shocked to receive an invitation for a life insurance policy that your mother recently purchased for your baby. That’s the strange and troubling situation that one new mom found herself in.
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As you may understand, the life insurance policy left this woman in tears. After all, the basic idea of life insurance is that if the named insured passes away, the beneficiaries would receive a cash payment — and no one wants to think about their toddler’s potential death.
After taking some time to think about the situation, the new mother has decided to decline this life insurance policy, but she’s not sure how to proceed without hurting the grandmother’s feelings.
Here we'll take a look at life insurance policies, and how this concerned mother can go about kindly rejecting the grandmother's gift.
Types of life insurance policies
Life insurance policies are broadly categorized into two main types: term life or whole life.
A term life insurance policy includes paying a premium for a specific period of time — say 10 to 30 years — with the understanding that if you pass away during that period, your beneficiaries would receive a cash payment. However, if you were to pass away after the term expired, your beneficiaries would not receive a death benefit.
For many, a term life insurance policy is an appropriate way to provide financial security for family members. But when discussing life insurance for a child, a term life insurance policy may not be the best option since it will only cover the insured for the first several years of their life.
As the name suggests, a whole life insurance policy covers the named insured for their entire life, assuming that the premiums are paid. If the name insured were to pass away at any time, the beneficiaries would receive a death benefit.
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Pros and cons of life insurance for a child
The advantages of a whole life insurance policy don’t just end with a death benefit. Whole life insurance policies often include a cash value savings component, which allows policyholders to build up cash value over time. That cash value can be used for several purposes, including withdrawing cash from it, offering tax-deferred growth and providing financial stability for the named insured.
Additionally, locking in a life insurance policy at a young age means the child can always carry life insurance even if they develop a condition later in life that would preclude them from purchasing a new policy.
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A whole life insurance policy could be a valuable tool for providing financial stability for the named insured, but if that’s the goal, life insurance may not be the right choice.
One of the drawbacks of a whole life insurance policy is that the cash value of these plans often include relatively low investment returns. Insurance companies invest a portion of your premiums to give your life insurance policy a cash value, and “the rate of return used to build your cash value might not be comparable to the rates of return of other savings alternatives,” according to the Government Employees’ Benefit Association.
Investing alternatives
This grandmother likely had the best of intentions in setting up a life insurance policy for her grandchild, but there are other ways to go about creating a bright financial future for the baby.
For example, the baby’s mother and grandmother might consider opening a 529 plan, which allows them to tuck away funds for the child’s future education.
They may even consider placing money in a low-cost index fund, which would likely yield better results than the cash value of a life insurance policy — and you don’t have to contemplate things like the potential death of a grandchild with such an investment.
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How to move forward
If the grandmother has set up the life insurance policy for the baby with no plans of keeping up with the payments, the simplest solution is to just let it slide. The mother can simply stop making payments, or never start making them in the first place, which will eventually lead to a cancellation of the policy.
However, if the grandmother intends to keep up with the payments, the mother can consider broaching the issue with her child’s best interests at heart.
As she navigates what could be a touchy conversation, the mother can share her thoughts on why the idea of a life insurance policy is upsetting, while also mentioning some of the other investing options mentioned above as an alternative.
The mother should do her best to communicate her gratitude for the grandmother’s intentions, while also trying to avoid pointing out all of the flaws in the life insurance plan. Instead, try to make it a team effort in moving away from the life insurance policy in hopes of pooling resources effectively for the child’s future.
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Sarah Sharkey is a personal finance writer who enjoys helping people make optimal financial decisions for their situation. She loves digging into the nitty-gritty details of financial products and money management strategies to root out the good, the bad, and the ugly. Her goal is to help readers find the best course of action for their needs.
