Child Life Insurance: Is It Right For Your Family?
Learn more about the different types of life insurance you can purchase for your children in Canada, and how they work.
12 Minute read
Originally published: July 21, 2022
Updated: May 31, 2024
Child Life Insurance: Is It Right For Your Family?
Learn more about the different types of life insurance you can purchase for your children in Canada, and how they work.
12 Minute read
Originally published: July 21, 2022
Updated: May 31, 2024
Planning for your children’s financial future is essential. One valuable, yet often overlooked, financial planning tool is life insurance. Securing life insurance coverage for your child can help safeguard your family’s financial stability in the event of an unexpected death. Additionally, it can be used as an investment tool with many child life insurance policies offering cash value accumulation, enabling you to start planning for your child’s future. This guide will take a deep dive into what child life insurance is, the benefits and drawbacks, the different types of policies available, and look at the 5 best child life insurance policies in Canada.
In this article:
What Is Children’s Life Insurance
A general term used to describe life insurance policies where the insured is a child is “children’s life insurance.” Children’s life insurance is a standalone life insurance policy or a policy rider purchased for a minor by their parent or guardian who will act as the policyholder.
The life insurance policy is in effect for the duration of the covered child’s life and may yield dividends and accrue a cash value while it is in effect. This gives the insured child lifelong insurance protection in addition to a head start on their financial objectives if the policy has a cash value component. If you are a parent or guardian, purchasing life insurance for any children in your care can not only offer you peace of mind but also offer your child future financial security.
Why Get Life Insurance For A Child
Although most people assume that only adults need life insurance, many parents also choose to get policies for their children. There are several reasons for this.
Financial Security for the Family: In the event of a tragedy, having life insurance for a child can provide some financial stability during a difficult time, allowing the family to focus on grieving and healing without the added stress of financial concerns.
Guaranteed Insurability: Purchasing life insurance for a child ensures that they will have coverage in the future, regardless of any health issues they may develop later in life. This can be particularly important if there is a family history of medical conditions.
Cash Value Accumulation: Many children’s life insurance policies, such as whole life policies, accumulate cash value over time. This can be borrowed against or withdrawn to help pay for future expenses like college tuition or other significant life events.
Lower Premiums: Insurance premiums for children are typically much lower than those for adults. Locking in a low premium rate when a child is young can result in substantial long-term savings.
Educational Tool: Child life insurance can also serve as a helpful educational tool to teach children about the importance of financial planning and the value of life insurance as they grow older.
How Does Children’s Life Insurance Work
Children’s life insurance typically works similarly to adult life insurance but with a few key differences tailored to the unique needs of insuring a child. Here are some of the main differences:
Coverage Amounts: Coverage amounts for children’s life insurance policies are generally lower than those for adults, often ranging from $10,000 to $100,000.
Premium Costs: Life insurance premiums are typically lower for children than for adults due to their age and general good health. Premiums are usually a fixed rate that does not increase over time.
Cash Value Accumulation: For many children’s life insurance policies, a portion of the premiums goes into a cash value amount. This amount grows over time at a guaranteed rate and can be accessed through loans or withdrawals for future needs, such as education expenses.
Guaranteed Insurability: Many children’s life insurance policies include a guaranteed insurability rider. This rider allows the child to purchase additional coverage in the future without undergoing a medical exam, regardless of any health changes.
Ownership and Beneficiary: The policy is typically owned by the parent or guardian who applies for it. The policyholder is typically the beneficiary, meaning they would receive the death benefit if the child were to pass away.
Conversion Options: Some policies offer options to convert the child’s policy into an adult policy when they reach a certain age. This can provide continuous coverage without needing to prove insurability. Alternatively, you have the option of changing the ownership of the policy to the child once they become of age.
Application Process: The application process for children’s life insurance is generally straightforward. Since children are usually in good health, medical exams are often not required, and policies can be issued relatively quickly.
Pros And Cons Of Child Life Insurance
Choosing to purchase children’s life insurance involves weighing the pros and cons based on individual family needs and financial goals. Children’s life insurance policies offer certain benefits such as guaranteed insurability and cash value accumulation, but you should always consider if these benefits are worth the cost and fit within your overall financial strategy.
The advantages of children’s life insurance are:
- Life insurance provides financial support to help parents or guardians cover funeral and burial expenses in the unfortunate event of a child’s death.
- Having a policy at a young age ensures that the child can obtain life insurance in the future, regardless of any health issues that may develop.
- Certain policies build a cash value over time, which can be borrowed against or withdrawn for future expenses, such as college tuition or a first home or vehicle purchase.
- Premiums for children are typically lower than those for adults. Locking in a low rate can result in significant savings over time.
Provides a financial safety net to covered children and their families.
The disadvantages of children’s life insurance are:
- Money spent on children’s life insurance premiums could potentially be invested elsewhere, such as in a college savings plan or other investment vehicles, which might yield higher returns.
- Understanding and managing a life insurance policy can be complex, particularly the aspects related to cash value accumulation and policy loans.
- Permanent life insurance policies that offer cash value accumulation require a long-term commitment to pay premiums. If the policy is surrendered early, it may result in financial loss.
Many families already have life insurance policies that cover all family members, including children, which might make a separate policy for a child redundant.
Types of Life Insurance Policies Available For Children
Choosing the right life insurance policy for a child involves considering the family’s financial goals, budget, and the specific needs of the child. In Canada, parents can select from various types of policies, each with distinct benefits and features.
Permanent Life Insurance (Whole Life or Universal Life)
Permanent life insurance, such as whole life or universal life, offers the most comprehensive coverage but can also be the most expensive. Key features include:
- Lifelong Coverage: Pays out regardless of when the insured passes away, ensuring lifelong protection – the policy never expires.
- Cash Value Accumulation: Part of the premium goes into a cash value account, which grows at a guaranteed rate and can be accessed for future needs.
- Fixed or Flexible Premiums: Whole life typically offers fixed premiums which remain the same throughout the life of the policy whereas universal life insurance may allow policyholders to adjust the premium payments and death benefits within certain limits.
- Higher Premiums: Premiums are much higher compared to term policies, reflecting the extensive coverage.
Term Life Insurance
While less common for children, term life insurance provides coverage for a specified period, such as 10, 20, or 30 years. Key features include:
- Temporary Coverage: The policy provides coverage for a set period. If the term ends, the policy expires unless it’s renewed.
- Renewal Without Medical Evidence: The policy can be renewed at predetermined intervals without the need for additional medical exams, ensuring continuous coverage.
- Conversion Option: Before these policies expire, you can convert them to permanent life policies, offering flexibility as the child grows.
- Lower Premiums: Premiums for term policies are generally lower than those for permanent life insurance policies, but they increase upon renewal.
Child Term Riders (CTR)
Child Term Riders (CTR) are an affordable option for insuring children if you would like to get a life insurance policy for yourself as well as for your child. Key features include:
- Guaranteed Insurability: These riders typically offer guaranteed insurability up to a certain age, usually 21-25. After this time your child will be able to purchase their own life insurance policy without needing a medical exam.
- Cost-Effective: Life insurance riders are typically cheaper than standalone policies, making it a budget-friendly choice for parents.
Critical Illness Insurance
Although this is not a traditional life insurance policy, critical illness insurance provides a lump-sum payment if the child is diagnosed with a covered critical illness. Key features include:
- Coverage for Specific Illnesses: Includes conditions such as cancer, leukemia, or congenital heart disease.
- Financial Support: The benefit can be used to cover medical expenses, travel for treatment, or other financial needs during the illness.
5 Best Life Insurance Plans for Children
The following trusted Canadian insurance providers offer some of the best child life insurance policies in Canada.
1. Headstart in Life Plan – BMO
Length of coverage: Permanent
Coverage Amount: $10,000, $20,000, or $30,000
Issue ages: 14 days – 17 years old
Features:
- Lifetime coverage with premiums payable for only 20 years.
- The policy comes with a guaranteed insurability benefit. On his or her 21st, 24th, 27th, and 30th birthday the covered child can purchase additional life insurance coverage without a medical exam or having to answer any health questions, with up to an additional $120,000 in coverage.
- If you, as the policy owner, die within 90 days of an injury caused by an accident, BMO Insurance will pay your premiums for as long as this policy remains in force.
2. Sun Par Protector II For Children – Sun Life Financial
Length of coverage: Permanent
Coverage Amount: $25,000 – $49,999
Issue ages: 0-85 years old
Features:
- Guaranteed premium payment options with the option for life pay, 10-pay, and 20-pay.
- Guaranteed cash value beginning in year five of the policy
- This is a participating policy, meaning policyholders are eligible to receive dividends, which can be used to purchase additional coverage, reduce premiums, or accumulate within the policy to earn interest.
- Guaranteed premiums remain fixed throughout the life of the policy.
- Additional benefits are available such as guaranteed insurability benefits, total disability waiver benefits, and child term benefits.
3. Universal Life Insurance – RBC
Length of coverage: Permanent
Coverage Amount: $25,000 – $25,000,000
Issue ages: 0-85 years old
Features:
- A portion of your premium purchases your insurance, while the rest earns interest that is not taxable while it remains in your policy.
- Create the portfolio that is right for you with a range of investments called interest options.
- Throughout your lifetime, you can access the funds in your policy as needed.
- Choose how much to pay into your policy and how you want to pay your premiums
- You can also choose either level protection or increasing protection death benefit, which determines if the cash value accumulation will be included in the death benefit.
4. Child Life & Accident Insurance – Manulife Financial
Length of coverage: Children are covered from birth up to age 21 (or up to 25 if attending school or university full-time).
Coverage Amount: $10,000 -$50,000
Issue ages: 0-65 years old
Features:
- This life insurance plan also comes with up to $250,000 of major impairment accident coverage.
- Policyholders only need to pay one monthly premium to cover all eligible dependent children.
- Additional eligible children are insured from birth at no additional cost.
- Acceptance is guaranteed with no medical questions when you apply for the first $10,000 in life insurance coverage — regardless of the current health of your eligible children.
5. Children’s Critical Illness Rider – Empire Life
Length of coverage: Children are covered from birth up to age 21 (or up to 25 if attending school or university full-time), or when the policy holder turns 75.
Coverage Amount For 0-17 Year Olds: $1,000 – $50,000
Issue Ages: 0-55 years old
Features:
- Since this is a life insurance rider, it is an optional addition to benefits from an eligible life insurance policy through Empire Life.
- This rider offers a benefit payout if a child is diagnosed with one of the covered conditions described in the policy. Covered conditions include autism, down syndrome, type 1 diabetes, deafness, blindness, paralysis, cerebral palsy, organ transplant, and more.
- Eligible children include natural-born children, adopted children, and stepchildren named in the application and approved for coverage.
Frequently Asked Questions (FAQs) about Life Insurance for Children
Children’s life insurance can be a good investment for some families, offering financial protection and potential savings growth. These policies provide a safety net in the event of a child’s unexpected death, covering funeral expenses and other costs. Additionally, some policies build cash value over time, which can be borrowed against or used for future financial needs, such as education. However, it is essential to weigh the benefits against other investment options and consider the family’s overall financial goals before making a decision.
A life insurance policy for a child can be purchased as soon as the child is born, and with certain policies, multiple additional children will get immediate coverage as soon as they are born as well. The advantages of buying early include locking in lower premiums and ensuring the child’s insurability regardless of future health conditions. Early purchase also maximizes the time for the policy’s cash value to grow, providing a financial resource for the child’s future needs. However, it’s important to assess your family’s financial priorities to determine the best timing for such an investment.
The cost of life insurance for children varies depending on several factors, including the type of policy (term or whole life), the coverage amount, and the child’s age and health. Generally, premiums for children’s life insurance are quite affordable, often ranging from $5 to $50 per month for coverage amounts between $10,000 and $50,000. Whole life policies tend to be more expensive than term policies due to their cash value component and lifelong coverage. It is advisable to compare quotes from different insurers to find the best rate and policy for your needs.
The amount of life insurance a child can get depends on the type and the policy you choose. Generally, if you choose to cover a child with a standalone policy coverage can range from $1,000 – $50,000. With a child term rider, you’ll typically have coverage available in increments of $5,000 up to $50,000.
Find a Solution That’s Right For You
If you still have questions about your life insurance options for you and your children, get in touch with us today! Working with a life insurance advisor can help you build the right life insurance plan and package for your needs, or explain your current coverage and protection.
At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to ensure the best solution for you and your needs. We provide expert life insurance solutions, including no medical life insurance, critical illness insurance, term life insurance, and permanent life insurance to build the best package to give you the protection you need.
Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, Alberta, Manitoba, and British Columbia including areas such as Ancaster, Prince George, Brandon, and Red Deer.
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