It's a form of whole life insurance policy, and works kinda like a forced savings account. You pay in, and if your child passes away, you get money to help pay for funeral expenses. At the end, you have a cash value, usually equal to what you paid, and you cash in your policy.
So let's say the policy is for $20K, and you pay $20 per month, for 20 years. You pay $4800, and at the end with your child alive, you usually get $4800 back.
Now, let's say you take that $20 per month and you put it in a savings account that bears 3% interest per month. You'd hit a savings of $4800 in about 6 years. Even at 1% interest, it woudl take you about 10 years, but still significantly less than the 20 years. Of course, with the policy, you have the protection of expenses should some tragedy befall your child. Of course, funeral expenses are horribly expensive.
at 7:45 PM on Jan. 6, 2011