What is the Best Life Insurance for Children?
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More than 20% of Canadians are living with preexisting medical conditions that may preclude them from purchasing traditional life insurance. If they do manage to find a policy that will cover them they are likely to have to accept higher premiums and more restrictive terms and conditions.
If you purchase life insurance for your child at a young age before they have any serious medical conditions you are guaranteeing their insurability. That means that, if they are unlucky enough to develop a serious condition or illness as they get older, their provider will continue to cover them. They will be able to roll over their policy and will also be able to add on further riders without having to go through medical exams.
What is life insurance for kids?
Life insurance for kids is a type of whole life insurance policy, purchased by a parent or guardian for an individual under the age of 18. Premiums are paid monthly and the 'death benefit' will be paid out in the unfortunate event of the child's death. When the child becomes legally of age they will take possession of the policy and it will be their decision to continue paying premiums or not. They will also be able to convert it into term life insurance.
Good to know
For an easy breakdown of the different types of life insurance and their comparative advantages and disadvantages see our life insurance guide.
Whole life insurance continues to accrue value over time and this value can be paid out in the form of dividends. In this way, whole life insurance can be used as an investment vehicle similar to a registered retirement savings plan (RRSP). However, if you are planning to use child life insurance as a way of saving money for your child there may be cheaper ways to do it. You may want to consider exchange-traded funds (EFTs) or guaranteed investment certificates (GICs) which can be set to unlock and payout when they reach a certain age.
Why would you buy child life insurance?
There are various reasons you might want to purchase life insurance. Let's take a look at some examples.
Case 1: insurability
Keep in mind
Barbara, 54, from Ontario, has purchased child life insurance for her 15-year-old daughter, Cathy. Barbara did not have adequate insurance in place when she became seriously ill ten years ago. Ever since she has had to pay higher premiums and has suffered financially. She wants to avoid her daughter ever being in the same position so she has purchased a policy for her.
Case 2: the investment
Keep in mind
Martin, 29, from BC, has a 5-year-old daughter. He is buying a kid's life insurance policy for his daughter so that when she comes of age she can choose either to keep paying or withdraw the money. He wants to give her the freedom to use the money as she chooses.
How much does life insurance for children cost?
Premiums for life insurance for children are typically much cheaper than premiums for adults because the risk being taken on by the provider is much lower. You can find policies with premiums as low as $4 a month.
The downside is that payouts are also typically capped much lower: between $10,000 and $35,000 per child. However, when the child comes of age they will be able to convert it into a standard adult policy with the usual, much higher cap, of say $250,000 or more.
Is life insurance for a child in Canada worth it?
If your primary concern is to make sure your child is insurable then buying a cheap life insurance policy for them that they will be able to convert easily is a good idea. You may therefore want to choose a policy based on the adult policies offered by that provider.
Get a life insurance policy that's right for you and your loved ones
If you are interested in children's life insurance as an investment then there are other options which may give greater value for money depending on your tolerance for risk. Aside from standard funds and investment vehicles, you could choose to purchase a registered education savings plan (RESP) which is geared specifically to paying for your children's tuition. If you are concerned that a life event might prevent them from being able to work as an adult then you could look into buying a registered disability savings plan (RDSP).
Whole life insurance for a child vs term life insurance for a child?
It is not possible to buy term life insurance for a child as this type of policy has a 'term limit'. You are only able to buy whole life insurance for a child.
However, if you have a term life insurance policy for yourself, you may be able to add a rider to the coverage which will protect your child as well. Once the child reaches an age specified in the rider you be able to convert this into permanent life insurance for them.
Another alternative is making sure your child is specifically listed in your own life insurance as a beneficiary. If you are interested in finding life insurance which can extend to your children at a great price then hit the button below.
Get a life insurance policy that's right for you and your loved ones
