Many people ask, “What is children’s insurance and why would you ever need or want to insure a child?” Tragedies can and do happen and generally people use children’s life insurance to provide the funds for their child’s funeral expenses. It can also provide funds so that you and your family can afford to take time off from work to mourn the loss of your child.
There are other less apparent but more appealing reasons why you should consider purchasing life insurance on your child. They include:
- Locking in insurability and future planning
- Affordability
- Paid up insurance for life
- Building an asset
- Locking in insurability. Many things can disqualify someone from being able to purchase life insurance in the future. Buying insurance for your children locks in their insurability, in some cases for their entire life. It can be a guarantee that your child will have some coverage no matter their health, occupation or recreational hobbies they take on in the future. There will most likely be a point in the future where your child will need to purchase life insurance, but because of good planning decades earlier their insurance need could be partially or fully taken care of, even if they have become uninsurable in the interim.
- Affordability. A major factor in the pricing of a life insurance product is the insured’s age. The younger a person is the less expensive their policy will be. Thus, getting some insurance at a young age is very beneficial when it comes to price. For permanent plans, you are also locking in a low rate, the premiums tend to be guaranteed so they will not increase over time.
- Paid up insurance for life. It is possible to have a permanent life insurance policy paid up in a matter of years and the coverage will last for a lifetime. If you purchase a plan when your child is young enough, by the time they are graduating university you will never have to put another dollar into it.
- Building an asset. Some insurance policies have an investment component built in. Participating permanent policies can collect dividends and have an accumulating cash value that can be a savings and investment vehicle for your child’s education, first home, travel, buy their first car, help start a business and more. Because Canadians need to be 18 years of age to open a TFSA, a children’s life insurance policy can be a great compliment to RESPs. It is an effect investment account that can grow tax-free and can be accessed later for any reason, not just for post secondary education.
Scenerio: This is an example illustrating a Participating Whole Life policy, the values noted below use $42,500 in total contributions (a cost of approximately $200/month or $2,500 per year, paid only for 17 years from birth and assuming a 5% annual rate of return and no additional contributions). The cash value can be accessed at any time for any purpose. In addition, your child has a death benefit that continues to grow every year.
| Year | Participating WL Cash Value (could be used for) | Participating WL Death Benefit |
| 18 | $44,163 (Education) | $322,171 |
| 35 | $99,828 (House) | $447,076 |
| 45 | $158,365 (Security) | $519,503 |
| 65 | $373,813 (Retirement) | $681,334 |
Photo by Patty Brito on Unsplash