Pros and cons of children’s life insurance in Canada

by Mark Cluett
5 min read

Keeping children safe is a top priority for any Canadian parent. Should children’s life insurance be part of that discussion?

It’s tough to contemplate what life insurance implies with regard to one’s child. Fortunately, children’s life insurance policies are about much more than the death benefit.

Life insurance for children in Canada can be an important investment and savings tool, and safeguard for future insurability.

KEY TAKEAWAYS

  • Children’s life insurance in Canada offers parents and grandparents an opportunity to create a financial asset for their children or grandchildren coupled with the possibility of lifelong insurance coverage.
  • Because of their young age and health, premiums for children’s coverage are often quite low compared to whole life policies for adults
  • While you can get a larger return-on-investment with other savings vehicles, they don’t include insurance coverage.
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What is children’s life insurance?

Children’s life insurance is a whole life insurance policy purchased for a minor by their parent or grandparent (the policyholder).

The policy remains in force for the covered child’s entire lifetime (including into adulthood) and can generate dividends during this entire period (as long as the policyholder keeps up with premiums). This provides the covered child with both lifelong insurance coverage and a head start on their financial savings and monetary goals if they choose to access that cash value.

This can help them fund their first car, home, or even their education; going with whole life insurance for your child provides an even wider array of options as well.

Pros of children’s life insurance in Canada

In the very unfortunate (and hopefully unlikely) event that your child dies at an early age, the death benefit from the policy can help alleviate any costs associated with that event. This can include funeral expenses, taking time to grieve, or private counselling.

Other advantages of children’s life insurance that the covered child can avail of are:

  • Life-long coverage for the insured child. This can prove incredibly helpful if a child is diagnosed with any critical illness or health conditions that may impact their insurability down the road.
  • Children’s life insurance policies generally offer lower premiums due to the young age and relative health of the insured child. Because of this, limited pay (paying down the entire policy in a short amount of time) can become an attractive option because of the lower cost.
  • Children’s life insurance can also be used as a savings vehicle as mentioned above, or a more flexible alternative to a Registered Education Savings Plan (RESP).
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Cons of children’s life insurance in Canada

There are some downsides associated with children’s life insurance as well, although they don’t apply to every situation. Some of the common ones would be:

  • Children’s life insurance policies can offer a lower rate of return compared to other investment options. The cash value component of children’s life insurance won’t beat a dedicated investment vehicle. With that said, no investment scheme will offer the included insurance benefit of a children’s insurance policy.
  • It’s a long-term commitment. For children’s insurance to make sense as both protection and investment, the policyholder needs to consistently pay the policy premiums for the required payment period. If one lapses on payments, many of the benefits (like guaranteed future insurability) will be in jeopardy.

Children’s life insurance has the potential to be a great gift for your child or grandchild should you choose to apply for a policy. Providing both future insurability and a financial asset can give them a headstart on their path to adulthood. Educating yourself about the policy’s possibilities and limitations can help you decide on the best coverage for your loved ones.

The information provided herein is for general informational purposes only. It is not intended and should not be construed to constitute legal or financial advice.

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