Purchasing life insurance for your child may be challenging as a parent. But it can provide invaluable financial protection and benefits throughout their lifetime if tragedy strikes.
This guide examines everything you need to know about getting life insurance for children for Canadian family.
What is Children’s Life Insurance?
Children’s life insurance policies provide financial protection in the unfortunate event of a child’s untimely passing. The policy is owned and paid for by a parent, grandparent or legal guardian who is named as the beneficiary. Payouts from the policy help the family cover final expenses, replace lost income, and stabilize financially during difficult times.
Top 5 Benefits of Life Insurance for Children
Here are some of the critical advantages that life insurance policies can provide for your kids:
Guaranteed Insurability
Purchasing coverage while your child is young and healthy guarantees they will have life insurance later in adulthood.
Many children’s term or permanent policies allow conversion to adult policies regardless of health changes. This locks in insurability for Life at favourable rates based on childhood health.
If your family has a history of medical conditions, like diabetes or heart disease, getting coverage early is wise. Your child likely won’t face coverage exclusions for pre-existing hereditary conditions if you obtain a policy in childhood before any diseases manifest.
Locking In Lower Premiums
Life insurance rates for children are meagre, especially in infancy and early childhood. Premium costs rise as we age due to increased health risks.
Buying life insurance when your child is young secures meagre long-term premium rates. This keeps costs down compared to waiting until adulthood when rates will be significantly higher.
The younger your child is when you purchase coverage, the lower your locked-in rates will be. Insuring early can save families thousands of dollars over the policy lifetime.
Building Up Cash Value
Permanent life insurance policies for children, like Whole Life and Universal Life, have a cash value component that builds up over time.
A portion of the premium paid goes toward cash value, accumulating interest at a guaranteed rate. This can serve as a tax-advantaged financial asset.
Cash value funds can be withdrawn or borrowed against in the future for any purpose. This gives your child a head start on financial goals like college, a first home, or starting a business. Having a financial cushion waiting can be invaluable during significant life milestones.
Covering Final Expenses
The brutal reality is that some children do pass away before their parents. About 2,000 Canadians aged 1-19 die annually, based on the latest statistics.
Having life insurance can make dealing with this tragedy slightly less burdensome. The lump-sum payout can be used to pay for your child’s funeral and burial costs without financial stress, which average $7,000 to $10,000 in Canada.
It also provides funds that allow you to take time off work to grieve without worrying about lost wages. Sadly, 1 in 6 parents lose their job after the loss of a child. Life insurance death benefits can help avoid this.
Legacy Planning
Some high-net-worth families utilize children’s life insurance within estate planning and legacy planning strategies.
Permanent cash value policies can be one efficient way to pass on wealth to the next generation. Premium payments grow the policy cash value, which transfers to the child tax-free upon the policy owner’s death.
When strategically incorporated, children’s life insurance can maximize inheritance tax efficiency when structuring your estate.
This approach requires expert legal and tax guidance. However, when done right, it can enhance generational wealth transfer while providing lifelong insurance protection.
What Age Can You Buy Life Insurance for a Child?
Most insurance companies allow parents to enroll their children in life insurance from as early as 14 days old up to age 17. The earlier you enroll your child, the better it is regarding rates, accumulating cash value, and locking in lifelong insurability.
Here are some additional tips on the ideal age to obtain children’s life insurance:
- 14 days to 6 months – Enrolling during infancy captures the lowest possible premiums on whole life policies with guaranteed lifetime rates. This maximizes cost savings over the long run.
- 6 months to 3 years – Still an ideal window for very low premiums compared to adulthood. Final expenses must also increase after infancy, which can be a good age range to boost coverage.
- 3 years to 17 years—Rates will be slightly higher than in infancy but still much lower than in adulthood. If you missed early childhood, elementary and middle school are still good times for enrollment.
- Teenagers—High school students see a rise in premium costs but are still below adult rates. If you have not insured your teen yet, consider policies that are convertible later to adult coverage, regardless of health changes.
While life insurance for infants covers the unexpected, some families wait until ages 3 to 5 when funeral expenses increase, yet favourable childhood rates are still available. Ultimately, earlier is better when securing the lowest premiums for Life.
Do Children’s Life Insurance Policies Pay Out?
You may wonder if purchasing life insurance coverage for a child is necessary, given today’s low childhood mortality rates. However, children’s life insurance policies do pay out on occasion.
Over 2,000 Canadian children between the ages of 1 and 19 pass away each year, based on the latest national statistical data. This equates to an average of over five child deaths per day.
While mortality is lower than in adult populations, the unexpected can occur. Accidents, childhood cancers, congenital disabilities and pediatric heart conditions are some leading causes of children’s deaths.
Having life insurance coverage that pays out a lump sum during an unimaginable tragedy can provide immediate financial support when families need it most. It helps cover costs and reduces money worries after a devastating loss.
The goal is to have coverage in place before an emergency strikes. Finding coverage after the fact when grieving would be significantly more difficult. Hence, planning with children’s life insurance can be sensible for many parents.
How Much Does Life Insurance for Children Cost in Canada?
The cost of life insurance for children varies primarily based on:
- Age of the child when the policy is purchased
- Amount of Coverage
- Length of coverage (term policies)
- Type of policy (term vs. permanent)
Monthly premiums are quite affordable, often ranging from $5 to $50, depending on the above factors.
Some sample costs for children’s life insurance based on typical coverage amounts:
- $10,000 coverage at age 5 – $5 to $15 monthly
- $25,000 coverage at birth – $10 to $30 monthly
- $50,000 coverage at birth – $20 to $60 monthly
When you enroll, The younger the child, the lower the premium costs. Whole life insurance rates start extremely low when purchased in infancy. Term life rates for children are also inexpensive compared to coverage for adults.
Your child’s health at the time of application may also affect rates. Most companies just review basic medical history for kids, but any chronic conditions could potentially raise premiums.
To save on costs, compare quotes from at least 3 life insurance providers before purchasing coverage for your child. This ensures you find the most competitive rates for your needs.
How Much Life Insurance Should You Buy for a Child?
When deciding how much life insurance to purchase for your child, here are some considerations:
Coverage Purpose
Are you primarily looking to cover final expenses like funeral costs? Or do you want to replace potential lost family income if you took leave after a child’s passing? Based on financial needs and income, this will determine if lower coverage amounts are sufficient or if more substantial coverage is warranted.
Family Budget
Factor the premium costs into your family’s budget. Opt for an amount of coverage you can comfortably afford monthly in the long run. Avoid straining your finances with overly high coverage amounts.
Future Needs
With permanent cash value policies, weigh the future benefits, like accumulating college savings, against the costs. Higher coverage now means more cash value later, but it comes at the price of higher lifelong premiums.
Existing Coverage
Review if you already have coverage, such as child riders on your own life insurance, that benefits your family. Adding a separate child policy may be redundant.
Commonly recommended coverage amounts range from:
- $10,000 to $25,000 for basic final expense needs.
- $25,000 to $50,000 to cover modest income replacement and final costs.
- $50,000 to $100,000+ for more significant income replacement.
Ultimately, the right amount depends on your family’s unique situation and needs. An insurance advisor can help tailor recommendations specific to your circumstances.
Children’s Life Insurance Policy Options
When it comes to purchasing life insurance for kids, you generally have these main policy options:
Standalone Child Policies
These are individual life insurance policies taken out specifically for a child. The owner/beneficiary is the parent or grandparent.
Benefits include complete control and flexibility over customized coverage. However, standalone policies tend to have higher premium costs than rider options.
Child Term Riders
A child term rider is an add-on to a parent’s individual life insurance policy that provides limited coverage for children, typically up to $25,000 per child.
Riders offer more affordable premiums by bundling coverage with the parent policy. However, the benefit amount is lower, and coverage expires if the parent dies first.
Family/Group Life Insurance
Some “family” or “group” life insurance packages cover kids and their parents under a single policy.
This can provide cost-efficient coverage for multiple children at once. However, the insurer must be notified whenever a child is added/removed as they age.
Spousal Life Insurance with Child Rider
If purchasing a new policy, some joint spousal life insurance plans allow adding a child rider.
This covers your spouse and a set benefit amount for children at a bundled discounted cost.
Types of life insurance for children in Canada
There are two main types of life insurance policies for children available in Canada:
Permanent Life Insurance for children
Let’s take a closer look at permanent life insurance policies for children and how they work:
Whole Life Insurance for children
With whole life insurance, premiums, death benefits, and cash values remain fixed over the policy’s lifetime.
The premiums are guaranteed with whole Life. This allows for securing set rates during childhood that never increase.
A portion of the premium goes toward building up the cash value, which grows at a declared interest rate outlined in the policy terms. This provides a conservative interest-earning asset that can be tapped in the future.
The death benefit is also guaranteed and will be paid to your child’s beneficiaries regardless of when they pass away later in Life.
Whole life insurance does come at a higher premium cost than term life insurance. However, the lifelong coverage and predictable costs may be preferable for some families.
Universal Life Insurance for children
Universal life insurance offers some additional flexibility compared to whole Life. Premium amounts can be adjusted, and the amount that goes toward the death benefit versus cash value can be customized.
With universal life insurance for children, the policy owner can increase or decrease the premium payments within set parameters. Lowering premiums means less cash value growth.
The death benefit can also be recalibrated up and down as needed after the initial purchase. This gives flexibility to adjust coverage as a child ages. However, the death benefit cannot go below outstanding policy loans.
For the cash value element, interest rates are variable based on current market rates rather than a fixed return. This allows for the potential of higher growth compared to a whole Life.
The adjustable premiums, death benefits and cash value options make universal life insurance more customizable to changing needs and budgets.
Term Life Insurance for Children
While less common than permanent policies, term life insurance is also an option for insuring kids. Here is how children’s term life insurance works:
- Select a set coverage term, such as 10 year term life insurance, 15 year term life insurance or 20 years term life insurance.
- Premiums remain at the same level for the term and then increase if renewed.
- The policy only pays out if your child passes away within the term.
- At the end of the term, the policy expires unless you renew coverage.
Term life insurance offers pure insurance protection. It is best suited for temporary needs like covering a remaining mortgage balance or getting kids through school.
Unlike permanent insurance, term life insurance does not accumulate cash value. However, its lower cost can make it more budget-friendly for some families.
Term lengths must be carefully selected for children. A 10- or 15-year term may expire before they reach adulthood and full financial independence. Hence, longer terms, like 20 years, may be preferable.
Getting Life Insurance for children With Pre-Existing Conditions
If your child has a pre-existing medical condition, this does not necessarily preclude getting life insurance. You may need to applying for life insurance in Canada for a particular policy covering higher risks.
Here are tips for finding children’s life insurance with pre-existing conditions:
- Be thorough when disclosing medical history upfront; otherwise, the insurer may deny claims later for fraud. Also, disclose conditions accurately.
- Expect to pay higher premium rates due to the increased risk of insurance. However, they should not be cost-prohibitive. Declined conditions like cancer may have more limited and expensive options.
- Look for “guaranteed issue” life insurance that does not require a medical exam or health screening. This type of insurance guarantees coverage for pre-existing conditions.
- If declined by regular insurers, seek out “high-risk” life insurance companies specializing in impaired risks. These carriers can often provide coverage.
- Work with an insurance broker who can access policies from many providers. They can save you time finding coverage.
Be upfront about your child’s health history and compare plans from specialized high-risk insurers or with guaranteed acceptance. Given your child’s unique circumstances, this will yield the best rates and terms.
What Factors Affect Premiums for Children’s Life Insurance?
Insurance companies evaluate several factors when pricing children’s life insurance policies. These elements impact the premium rates you will pay:
- Age at purchase – Older children have higher premiums than infants or toddlers. Insurability declines with age.
- Amount of coverage – More coverage means higher premiums. Optimize this based on actual needs.
- Term length – Longer terms on children’s term policies translate to higher premiums.
- Type of policy – Permanent insurance costs more than term life insurance.
- Gender – Insurance statistics show females have lower mortality. Hence, life insurance rates for baby girls are a few percent cheaper.
- Health conditions – Any chronic childhood conditions could increase premiums slightly due to extra mortality risk.
- Family history – Existing hereditary conditions may be factored into rates. Disclose any relevant family medical history.
The key takeaway is that purchasing coverage earlier in childhood and with shorter terms or lower benefit amounts generally reduces premium costs. Optimizing these policy parameters ensures the most cost-effective children’s life insurance rates.
Alternatives to Life Insurance for Children
While life insurance for kids offers essential benefits, other financial vehicles may also complement your family’s goals. Some alternatives to consider include:
High-Interest Savings Accounts
Opening a dedicated savings account can allow you to build up funds that are systematically accessible for multiple needs over time. Interest earnings will accumulate tax-free, unlike life insurance withdrawals.
Registered Education Savings Plan (RESP)
RESPs provide tax-advantaged savings strictly for post-secondary education. The plans benefit from government grants to boost education funds further. RESPs make saving for future schooling easy.
Your Life Insurance Policy
Having adequate life insurance coverage for yourself as the breadwinner should be a priority over buying policies for dependents. Ensure your family’s financial future is protected in case you pass unexpectedly.
Disability Insurance
Disability insurance for parents can provide income if they cannot work due to illness or injury. Given the higher odds of requiring disability versus life insurance benefits, this may take precedence.
Paying Off High-Interest Debt
Reducing credit cards and other high-interest debt improves family financial standing. In the short run, this may be wiser than additional insurance costs.
For most families, the above options likely take priority over life insurance for kids. Work with a financial advisor to ensure you make the best choices for your situation.
Pros and Cons of Life Insurance for Children in Canada
Purchasing life insurance coverage for your children comes with certain advantages and drawbacks that must be weighed carefully.
Pros of Life Insurance for Kids
Here are some of the critical potential upsides that life insurance can provide for children:
- Guaranteed Insurability – Applying while your child is young and healthy, regardless of any future health changes or hereditary conditions, guarantees they will have life insurance later in adulthood when financial dependents rely on them.
- Locking In Low Premium Rates – Premium costs for life insurance rise as we age due to increased mortality risk. Buying coverage early in childhood locks in very affordable premium rates for the long term.
- Building Cash Value – Permanent life insurance policies accumulate a cash value that grows on a tax-advantaged basis. This can help pay for college or other expenses when your child reaches adulthood.
- Covering Final Expenses – Unfortunately, some children do pass away before their parents. Life insurance provides funds to cover end-of-life costs like funeral expenses without putting parents under financial strain.
- Replacing Lost Income – For families relying on two incomes, a payout from children’s life insurance can help replace lost wages if a parent or guardian needs to take leave from work after a tragic loss.
- Estate Planning – High net-worth families may use children’s permanent life insurance policies as part of estate planning and legacy planning strategies to efficiently transfer intergenerational wealth.
Cons of Life Insurance for Children
Some essential cons or disadvantages to consider include:
- Opportunity Cost – The money spent on life insurance premiums could yield higher returns if invested elsewhere, like in RESPs or stocks/mutual funds.
- Requires Long-Term Commitment – Permanent life insurance policies must be retained for decades for your child to realize the full benefits; otherwise, early cancellation results in financial losses.
- Limited Death Benefit – Children’s policies restrict the death benefit amount, meaning additional coverage will be needed as your dependents grow older.
- Only Pays Upon Death – The policy only pays out if your child dies. Other financial vehicles offer more flexibility in accessing funds.
- Typically Not Needed—Most families are better off focusing on things like an emergency fund, retirement savings, and debt clearance before buying life insurance for their kids.
Tips for Buying Life Insurance for a Child
If you do decide to purchase life insurance for your child, here are some tips to get the best coverage:
- Compare quotes from at least 3 providers before choosing. This ensures the most competitive premium pricing. Get quotes early in pregnancy or shortly after birth to maximize savings.
- Ask about policy conversion options. Selecting a convertible term or permanent policy means your child can extend coverage into adulthood regardless of health changes.
- Look for a guaranteed purchase option with some plans that allow buying additional specified amounts of insurance at different life milestones without new underwriting. This makes boosting coverage simple as their needs grow.
- Review exclusions. Some policies may exclude certain high-risk activities that could lead to limited benefit payouts in the event of death.
- Understand the cash value accumulation on permanent policies. Project illustrations estimate the cash value growth using guaranteed rates or current assumptions. This predicts the policy’s future performance.
- Seek discounts like multi-child discounts if buying coverage for more than one child. Discounts can provide meaningful premium savings but don’t select coverage just for discounts.
- Work with an expert insurance advisor to select the optimal type and amount of coverage tailored to your family’s needs and budget. Their guidance can be invaluable.
Is Life Insurance on Your Child Worthwhile?
While the thought may be complex, life insurance can be worthwhile to:
- Guarantee your child lifelong insurability if health issues emerge later at favourable rates.
- Lock in affordable premiums for Life by purchasing coverage early in childhood.
- Provide final expense funding in case the unimaginable occurs.
- Potentially build up a tax-advantaged asset via cash value to give your child a head start in Life.
However, it should not compromise present financial priorities and savings goals. Review your budget and overall financial plan to decide if purchasing a policy aligns with your family’s circumstances.
For most households, clearing debts, building emergency savings, and adequately insuring parents should take precedence over buying life insurance for dependents. Work with a financial advisor to ensure you make the most suitable choice.
Frequently Asked Questions on Children’s Life Insurance
At what age can you buy life insurance for a child in Canada?
Most companies allow enrollment between 14 days after birth and up until age 17. Buying earlier maximizes benefits like lower premiums and cash value growth on permanent policies.
What are the main types of life insurance policies for children in Canada?
The two primary types are term and permanent life insurance (such as whole and universal life). Term provides temporary coverage, while permanent offers lifelong coverage and cash value accumulation.
Do children need a medical exam for life insurance in Canada?
In most cases, no. Children's life insurance only requires answering basic health history questions on the application. A medical exam is rarely needed.
How much does life insurance for children cost per month in Canada?
Premiums are affordable, ranging from $5 to $50 monthly, depending on the child's age and the coverage selected. Buying earlier means lower rates.
What is the typical amount of life insurance for a child in Canada?
Recommended coverage amounts range from $10,000 to $50,000. Lower amounts, like $25,000, can cover final expenses, while higher amounts replace potential family income loss if a parent passes away.
Can grandparents buy life insurance policies for grandchildren in Canada?
Yes. Grandparents need to obtain consent from the parents and have an insurable interest, such as potential childcare costs for the grandchild.
At what age should you transfer a child's life insurance policy ownership in Canada?
It's recommended that ownership be transferred once the child becomes an adult, often between ages 21 and 25. This avoids potential taxation issues associated with retaining ownership for too long.
Can life insurance benefits for children be used for any purpose by the beneficiary in Canada?
Yes. The tax-free death benefit payout can be utilized however the beneficiary deems fit, whether for final expenses, a mortgage, or other needs.
What are the main benefits of life insurance for children in Canada?
The main benefits include guaranteed future insurability, locking in low premium rates, building up cash value, and providing funds to cover final expenses or income loss if the unimaginable occurred.
What alternatives exist besides buying life insurance for kids in Canada?
Some alternatives are high-interest savings accounts, RESPs for education savings, paying down high-interest debt, and ensuring parents have adequate life insurance first.
Can you get life insurance for children with pre-existing conditions in Canada?
You can get coverage for kids with pre-existing conditions, but you may need to apply through a high-risk specialist insurer at a higher premium cost. Disclosing conditions upfront is essential.
How long should children be covered with life insurance in Canada?
Experts recommend at least until age 25 while kids complete education and begin financial independence. Term policies should extend through this age minimum before converting to permanent coverage.
Can I convert my child's term policy to permanent life insurance without a medical exam in Canada?
Many convertible term life policies allow switching to permanent life insurance without medical exams, provided you maintain continuous coverage.
What activities could impact eligibility or the cost of children's life insurance in Canada?
High-risk hobbies like auto racing, which increase mortality odds, can result in higher premiums or coverage exclusions. Disclose any dangerous activities.
Is life insurance worth buying for kids in most cases in Canada?
In most cases, focus on savings vehicles like RESPs and your life insurance protection first. But life insurance for kids can make sense to guarantee insurability, secure lower rates, or provide final expense funding in some families.
What age should kids be covered with life insurance?
Ideally, children should be insured until the age of 25 while completing their education and financial establishment as independent adults. Term policies should extend through this age minimum.
Conclusion
While a problematic topic, life insurance for children can provide financial safeguards and lifelong benefits under the right circumstances. Assess your specific situation, priorities, risks and needs to determine if children’s coverage aligns with your family’s requirements.
Connect with an insurance advisor for guidance in navigating children’s life insurance options. An expert can help educate you on policies and strategically select appropriate solutions tailored to your family’s financial situation. Visit Best Insurance Online to compare top insurance providers and find experts to assist you.