The regulation says what it is worried about, which is unusual and useful. Washington's rules on juvenile life insurance state their purpose in the first section: "to set standards for detecting and preventing the purchase of juvenile life insurance for speculative or fraudulent reasons, by ensuring that insurance underwriting practices consider such risk, and by setting forth the minimum practices required to insure the life of a juvenile." Everything else in the rule follows from that sentence. It is the same concern that produced the insurable interest doctrine generally, applied to the one class of insured who cannot consent for themselves and whose death produces no measurable economic loss.
Three consent and interest requirements sit on the front of the transaction. Under Washington's rules, life insurance on a juvenile "must not be made or take effect unless at the time the contract is made, the applicant is a person having an insurable interest in the life of the juvenile", and the insurer "must obtain and keep documentation sufficient to demonstrate" it. Beyond the applicant's own signature, "the consent of the parent or legal guardian with whom the juvenile resides, as evidenced by signature, must be obtained before submitting the application for underwriting", and "[a]ny juvenile age fifteen or older must sign the application for insurance on the juvenile's life." New York reaches the consent question from the other direction, providing that a minor above the age of fourteen years and six months "shall be deemed competent to enter into a contract for, be the owner of, and exercise all rights relating to" a policy on their own life or on a life in which they have an insurable interest, while restricting the beneficiary of such a policy to "the minor or the parent, spouse, brother, sister, child or grandparent of the minor."
The amount limits are keyed to the buyer rather than to the child, which is the mechanism that actually stops speculation. New York's statute provides that an insurer "shall not knowingly issue" a policy on the life of a minor under fourteen years and six months for an amount which, together with insurance already in force on that minor's life, exceeds the greater of three figures: fifty thousand dollars; fifty per centum of the life insurance in force on the life of the person effectuating the insurance; or twenty-five per centum of that amount where the minor is under four years and six months. Because two of the three limbs are proportions of the buyer's own coverage, a purchaser who carries little insurance on their own life cannot buy much on the child's, which is precisely the pattern a speculative purchase would show. The statute adds two refinements worth knowing: a policy within the limit when issued does not become excessive later merely because the buyer's own coverage falls, and where the minor is not dependent on the person effectuating and paying for the insurance, and that person has an insurable interest, the ceiling does not apply at all.
The consequence of exceeding the limit falls on the claim, not on the application. Under the same statute, where a policy is issued in excess of the limit, "the amount under such policy which is in excess shall not be valid, or payable as a claim by death, so long as and to the extent that it continues to be in excess", and the insurer refunds the premiums paid on the excess amount, with interest, on demand or at death. Nothing is treated as excessive once the minor reaches fourteen years and six months. So the penalty for over-insuring a small child is a family that discovers at the worst possible moment that part of what they paid for was never in force.
Washington polices the same risk through underwriting justification rather than a formula, and its two tests are the interesting part. An insurer must be able to show the commissioner why it issued a juvenile policy at all, and the justification has to address, among other things, whether "the policy death benefit is grossly proportional to the value of life insurance or accidental death benefits issued for other siblings or immediate family members", and whether the insurer had good cause to underwrite "when the overall amount of insurance on the juvenile exceeds the annual household income". Insuring one child heavily while the others carry nothing, or insuring a child for more than the household earns in a year, are both patterns the regulator expects an insurer to be able to explain. Where an application of fifty thousand dollars or less is issued without underwriting, the insurer must take reasonable steps to find existing coverage on that child, including checking a national in-force database, and must use an application carrying this statement in bold twelve-point type: "This policy may be void or reduced when a claim is submitted if the total amount of life insurance in-force from all sources exceeds the underwriting limits established for issuance of this policy on the life of a juvenile."
What the product is sold for, and what each feature is actually worth. The first selling point is guaranteed future insurability: the child can buy more coverage later at stated ages regardless of health, which is a real benefit whose value depends entirely on a future nobody can price. It is also the benefit a child rider on a parent's existing policy commonly provides, at a fraction of the cost, which is the comparison to make before buying a standalone contract. The second is cash value, which on a small permanent policy accumulates slowly and is being compared against saving vehicles built for the purpose, including custodial accounts and education accounts. The third is immediate coverage for costs at a child's death, which is a genuine expense and a small one relative to the face amounts commonly sold. None of that makes the product unreasonable. It makes the ordering of the questions matter: what is being insured, what would otherwise pay for it, and what the same premium does elsewhere.
