Discover the various types of life insurance available for kids in Canada and understand how they function.

Planning ahead for you and your family as new or expecting parents is crucial, and including life insurance in your financial plans is highly beneficial. A critical aspect of protecting your family with insurance is obtaining coverage specifically for your child, not just yourself and your spouse. Although you may have encountered some options already, it’s crucial to fully understand your options for life insurance for your children.

What is Life Insurance for Children in Canada?

Parents or grandparents typically purchase “children’s life insurance,” which refers to life insurance policies where the child is insured. This type of insurance involves a parent or grandparent acting as the policyholder and buying a policy or rider for the minor.

The insurance remains active throughout the covered child’s life and can generate dividends if the policyholder maintains premium payments. This ensures lifelong insurance protection for the insured child and provides an early opportunity to pursue financial goals and savings by accessing the cash value.

When you buy permanent life insurance for your child, you open up a broader range of options for them. This can assist them in financing their education, home, or first vehicle.

As a parent or grandparent, buying life insurance for the children under your care can provide them with lifelong financial stability. Additionally, it offers extra financial assistance if they pass away before you. However, this is usually not the primary reason for obtaining a policy for kids.

How Does Life Insurance For Kids Work?

When considering life insurance for your child, you have two primary options: purchasing a separate policy or adding them as a rider to your own policy. Both options come with different benefits and coverage levels, but they operate similarly by providing protection for your child through benefits paid out to the beneficiary in case of unforeseen circumstances.

Child life insurance serves as a valuable financial tool. It can be utilized to invest in college expenses, secure low premiums for your child, ensure your child’s insurability, and cover funeral expenses in case of their passing.

What is the Objective of Life Insurance for Kids?

While many believe life insurance is only necessary for adults, parents should consider obtaining it for their children for several reasons.

Investing in life insurance for your child establishes a crucial financial cushion. In the unfortunate event of your child’s passing, the assigned beneficiary receives the payout from the policy, which can assist with living expenses or settling any debts, including burial costs. Opting for a permanent life insurance policy for your child also allows cash value accumulation, providing a resource for future financial needs.

The Place of a Buy-Sell Agreement in the Cash Flow System

In addition to planning for unexpected circumstances, insurance can contribute greatly in protecting children’s health and financial well-being throughout their lifetime.

By securing a policy for them now, they may be able to convert it into an adult policy later without needing a medical exam. This could lead to lower premiums since they’ll likely be based on their healthier, younger status. However, this varies among insurance providers, so consulting an insurance advisor is advisable if you’re uncertain.

Pros and Cons of Life Insurance For Kids

Like any insurance, child policies have pros and cons. One clear benefit is that such policies can ease the financial burden in the event of a tragedy through the death benefit. This may cover expenses like funeral costs, allow mourning space, or allow access to private counseling services.

Children’s life insurance offers additional benefits such as:

• The insurance will cover the child for life. This can be useful if the child gets critical sickness later on, affecting their ability to get insurance.
• Children’s life insurance policies usually have cheaper premiums because the child is young and healthy.
• Children’s life insurance can be a savings tool, offering flexibility similar to, or equivalent to, a Registered Education Savings Plan (RESP).

While not applicable to every scenario, children’s life insurance does have some drawbacks. Some common disadvantages include:

• Children’s life insurance policies typically yield a lower return than alternative investment options. The cash value aspect of children’s life insurance generally does not outperform specialized investment vehicles.

• It requires a long-term commitment. For children’s insurance to be effective as both protection and investment, the policyholder must consistently pay the premiums for the specified period. If payments are missed, many benefits, such as guaranteed future insurability, could be at risk.

Opting for children’s life insurance can be a wonderful gift for your child or grandchild. By providing them with future insurability and a financial asset, you are setting them on a positive trajectory into adulthood. You need to understand the policy’s potential and limitations to select the most suitable coverage for your loved ones.

How Can I Purchase Life Insurance For My Child?

You can get life insurance for your child in two ways: by adding a term rider to your policy or buying them their own policy. Term riders are usually cheaper but offer less coverage. At the same time, permanent life insurance for children gives more coverage options and ability to qualify for insurability later in life.

• Permanent insurance (whole life or universal life): This choice gives the best coverage but costs a lot. It pays out no matter when the person dies, but you have to pay more each month. Sometimes, you can invest with it, but investing in a TFSA or RRSP is better.

• Stand Alone Term Renewable Coverage: This insurance policy is specifically designed for children, offering coverage for a set term and allowing renewal at predetermined intervals without the need for additional medical documentation. You have the option to convert these policies into permanent life insurance before they expire.
• Child Term Riders (CTR): If you already have life insurance, one of the most economical options to insure your children is through a Child Term Rider (CTR). These riders usually guarantee insurability up to a certain age, typically 21–25. This means your child can purchase their own life insurance policy as they transition into adulthood without requiring a medical exam.

Unless you’re wealthy, getting whole or universal life insurance for kids is probably not the best idea.

Stand Alone Term Renewable Coverage

This term life policy is tailor-made for your child. Being a renewable term policy, the coverage ends after a fixed number of years but can be renewed without requiring a medical exam. You also have the choice to convert the policy into a permanent one before it reaches its expiration.

Child Term Riders (CTR)

If you already have a life insurance policy with an insurance company, they’ll propose a child term rider to cover your children. This rider, also referred to as ‘child rider’ or term rider,’ offers a relatively affordable method of securing life insurance for your young ones. It provides a death benefit of up to $30,000 if one of your covered kids passes away while your policy is active.

Usually, these riders ensure guaranteed insurability until a specified age. They might extend coverage for your children until they’re between 21 and 25 years old, enabling them to obtain their own life insurance policy.

Permanent Insurance for Kids

Whole or universal life insurance policies for children provide thorough coverage but come at a higher cost than term life insurance. Since they ensure coverage for your child’s entire life, they will pay out the death benefit regardless of when the insured passes away.

In summary, a child rider offers a death benefit if any of your children pass away, without the intricate investing aspect, and can be transformed into a permanent policy later if your child requires lifelong coverage. A child rider is more economical than a complete child life insurance policy. Typically, it amounts to around $5 annually for every $1,000 of coverage. Therefore, you might pay an extra $50 yearly for a $10,000 child rider.

Which children’s life insurance policy is the most suitable?

Many of Canada’s leading insurance companies, such as Industrial Alliance, Assumption Life, Empire Life of Canada, and Equitable Life of Canada, offer child term riders and whole life insurance options for children. The best children’s life insurance policy for families like yours can depend on personal preferences, specific needs such as riders and options, and other factors. Various considerations can influence the choice, whether it’s a permanent policy or a term rider

Talk to a life insurance advisor or expert to learn more about how children’s life insurance works. At PB Bankers, we help Canadian families protect their money’s future and find the right coverage for them. Whether you’re thinking about children’s insurance or other types like universal life insurance, we’re here to help.

When is The Best Time to Purchase a Policy For a Child?

A few insurance companies provide policies that start when a child is only 15 days old. By beginning coverage at this young age, you gain the advantage of having more years to gather dividends on a participating permanent policy. Remember that prices and premiums typically rise as the child ages.

Finding The Right Protection For You And Your Family

If you still have questions about your life insurance options for you and your children, contact us today! A life insurance advisor can help you build the right plan and package for your needs or explain your current coverage and protection.

At PB Bankers, we collaborate with and evaluate policies and quotes from top life insurance companies in Canada to secure the optimal solution for you and your requirements. We offer proficient life insurance solutions, encompassing no medical life insurance, critical illness insurance, term life insurance, and permanent life insurance, to craft the finest package that provides the required protection.