Life Insurance for Children: A Guide for Parents

People often purchase life insurance as a way to protect their loved ones in the event of their own death. So it can make parents feel strange, awkward or uncomfortable to think about purchasing life insurance for their child.

No parent wants to think about something terrible happening to their kids. However, having a financial safety net to protect your family during a tragic loss isn’t the only reason to purchase a life insurance policy for kids.

Getting life insurance early can set your kids up with paying low-cost premiums for life while simultaneously ensuring they are protected as adults. Certain types of life insurance policies can even act as a savings tool, one that helps to secure your children’s financial future.

Key takeaways

• Getting life insurance for your child isn’t just about having financial security in the face of a tragedy – it can also benefit your child in the long term.

• The two most common types of life insurance purchased for children are child term riders and whole life insurance.

• Purchasing life insurance for a child can help guarantee their future insurability as an adult.

• Participating whole life insurance policies offer cash savings components that can help support your child in paying university tuition or buying their first home.

• Child term riders offer more affordable coverage and can be applied to more than one child.

How does life insurance for children work?

In Canada, only parents, grandparents, and legal guardians can purchase a life insurance policy for a child. When a policy is purchased, the child is the policy holder (the person insured) and the parents are typically the beneficiaries. That means if a fatality were to occur, the parent, as beneficiary,would receive the death benefit payout.

For adults with life insurance coverage, a death benefit payout is meant to address certain end of life expenses – think: outstanding bills, funeral costs, or loss of income for dependants. Children, of course, don’t have their own expenses but a death benefit payout can cover funeral costs and allow families time to grieve without the additional stress of having to return to work immediately in order to avoid a disruption in their income.

A life insurance policy for a child can usually be purchased soon after they’re born. Most providers require that children be at least between 15 and 60 days old. Typically, there’s a 24-month waiting period where the death benefit payout will typically remain limited to what had already been paid in premiums.

Benefits of life insurance for children

It’s hard to think about our children encountering any kind of difficulty or tragedy but life insurance policies aren’t only about the worst case scenario. Young policy holders have access to financial benefits that can be a real advantage to them as they enter adulthood.

Here are a few ways life insurance benefits kids:

Guaranteed future insurability for your child

Purchasing a life insurance policy for your child is a way to future-proof their insurability as they grow up. This means your child can convert their policy as an adult (usually around the age of 25) and continue to be insured without a medical questionnaire or exam. Should your child be diagnosed with a chronic illness like diabetes or epilepsy, they won’t have to worry about paying higher premiums or facing obstacles in obtaining coverage.

Lower premiums

Because premiums are based on factors related to age and health, insuring kids while they’re young means that you’re able to lock in low rates, often for life. Purchasing a plan for a young child can result in cost savings in the long term.

Build wealth and savings for the future

Whole life insurance plans have a built-in savings component that your child could rely on when it comes time to pay for post-secondary education or to put a downpayment on their first home. The cash value component of their policy, which accumulates over the course of their childhood and teen years, can be withdrawn without any tax penalties once they reach the age of majority.

Financial protection and peace of mind

First and foremost, life insurance is designed to secure the wellbeing of your family by protecting you financially in the event of a loss. While no one wants to think about the loss of a child, there is some peace of mind in knowing that should the worst happen, the cost of a funeral and other end of life expenses would be covered. Your family would have the time and space to grieve without the additional burden of financial stress or worry.

Types of life insurance for children

In Canada, there are two common types of life insurance coverage available for children. Each has its own set of pros and cons, so it’s up to parents to decide which kind of policy is the best fit in terms of both your goals and your budget.

Child Term Rider (CTR)

A child term rider (CTR) offers one of the most affordable ways to purchase coverage for your kid. A rider is added on to an existing policy (such as your own whole or term life insurance coverage) and provides guaranteed insurability up to the age and amount indicated by your insurance provider.  Child term riders are designed to cover multiple kids under one policy, whether they are your biological children or legally adopted.

When the term of coverage ends, the policy can be transferred to your adult child for an additional term (period of coverage) or to permanent coverage, often without requiring a medical exam. CTRs are relatively low cost additions to your own coverage and offer good value for money. Child term riders are available on term life, universal life, and whole life insurance. 

Pros and cons of Child Term Rider

The benefits of a child term rider include:

• Low cost coverage for your kids.

• The ease of adding coverage to your already existing life insurance.

• The option to cover more than one child on the rider.

• Your children aren’t required to undergo a medical exam if they convert to an adult policy.

The drawbacks of a child term rider include:  

• A lower death benefit payout than other types of policies.

• Coverage is contingent upon a parent’s initial policy remaining active.

• Policies don’t offer a savings or cash value component.

Whole life insurance for children

Whole life insurance for kids offers permanent coverage with tax advantage savings in a standalone policy that isn’t tied to a parent, grandparent or guardian. With this type of coverage, your kids will have their own policy that they can extend into adulthood, while paying the same fixed premiums and enjoying the benefits of a tax-deferred cash value component. Once they’re adults, your kids could withdraw or borrow against the policy in order to fund post-secondary education, take a gap year, or purchase their first home.

Pros and cons of whole life insurance for children

The benefits of a whole life policy for kids include:

• An investment component that can give your child a financial headstart when they reach adulthood.

• Coverage is locked in and secured when children are young and healthy.

• Tax-deferred growth that offers investment flexibility.

The drawbacks of a whole life policy for kids include:

• Whole life insurance is more expensive that the cost of a child teem rider.

• Each policy only cover a specific individual meaning that families with more than one child require multiple policies to ensure each child is protected.

Some insurance companies also have the option to purchase standalone renewable term coverage for a child, which offers pros and cons similar to a child term rider.

What to consider when buying life insurance for your child

If you’re thinking about purchasing a life insurance policy for your child, you’ll want to think about the following:

What are your insurance needs? Are you purchasing a plan in order to provide your family with financial security and peace of mind? Or are you also pursuing a goal to help build a financial foundation and offer your child a financial head start when they reach adulthood?

What is your budget? Whole life insurance policies come with higher monthly premiums and require you to purchase separate policies for each child you insure. Child term riders typically cover every child in your household at a lower monthly cost. Run the numbers ahead of time to ensure you can comfortably afford coverage in the long-term.

For how long and how much coverage are you seeking? Some parents may simply want to be sure that they have enough insurance to cover end of life or funeral costs while others would like to have a financial safety net in place for their family should the unthinkable occur. With RBC Insurance, coverage amounts for child term riders typically start at $5,000 and go up to as much as $30,000.

Speak to an advisor: A licensed insurance advisor can help you choose a policy option based on your specific needs and your family’s financial goals.

Is life insurance right for your kids?

Every parent or grandparent hopes that a life insurance policy for the children in their family is something they never need. However, understanding the benefits – such as lower premiums over the course of your child’s lifetime, future guaranteed insurability, and the opportunity to build wealth – should play an important role in your decision-making. If you’re considering purchasing life insurance for your children but aren’t sure which type of coverage suits your family’s financial needs, contact a trusted insurance advisor to help guide you towards the best decision for your kids and their future.

FAQs about life insurance for children

Can I buy life insurance for my baby?

Yes, children as young as 14 days old  can be insured but it’s important to keep in mind that the death benefit payout will remain limited for the first two years of coverage.

Is life insurance worth it for children?

The answer depends on the unique financial goals and needs of your family. Life insurance for children offers peace of mind and financial support for families in the face of a bereavement but you might also want to consider life insurance for your child if you’re concerned about their future insurability or if you want to use your child’s policy as a vehicle for building wealth.

How much life insurance does my child need?

Coverage amounts are determined by your needs as a family and your financial goals for your child’s future. Some families may only want enough insurance to cover funeral costs while others would like a more substantial financial safety net. Child term riders typically offer coverage from $5,000 to $50,000 depending on the policy.

Can I buy life insurance for my grandchild?

Yes, in Canada parents, grandparents, and legal guardians are permitted to purchase life insurance for children.

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