You can add coverage for a child to your term life policy for a small monthly fee. Otherwise, you can buy a standalone whole life or term life insurance policy for your child.
How do I buy life insurance for my son or daughter?
This is one question we get asked a lot.
Well, as mentioned before, there are three ways you can buy life insurance for kids. Let’s look at each one in detail.
Child Term Rider
If you have an existing life insurance policy, you can add a child term rider to it to cover your children. A child term rider, also known as ‘children’s term rider’ or child rider, is perhaps the least expensive way to buy life insurance for children. It pays out a death benefit if one of your children dies while your policy is in force.
Typically, these riders offer guaranteed insurability up to a certain age. They may cover your children until they reach the age of 22 to 25.
Stand Alone Term Renewable Coverage
This is a term life insurance policy you can buy specifically for your child. As it’s a renewable term policy, the coverage expires at the end of a set number of years, but can be renewed without a medical exam. You also have the option to convert the policy into a permanent one before it expires.
Insurance Coverage for Life (Whole or Universal)
Whole or universal life insurance policies offer comprehensive coverage, but they are more expensive than term life. Such a policy will cover your child for life. That is, it will pay the death benefit regardless of when the insured dies.
In addition to providing lifelong coverage, these policies often include an investment option. However, you may want to consider investing in your TFSA or RRSP before getting a life insurance policy. This is because whole life policies generally have a lower rate of return and higher fees than other investment vehicles.
Unless you are a high net worth individual and have maxed out other investment options, buying whole or universal life insurance for children might not make sense for you.
Does a Child Need Life Insurance?
Let’s face it. No parent wants to think about their child’s death. However, a little planning can make things a lot easier if the unthinkable happens. Life insurance can’t replace your loss, but it can ensure you won’t have to worry about funeral and other costs on top of grieving.
Putting feelings aside, infant mortality in Canada is 0.5%. While that isn’t unreasonably high, it’s pretty much the same mortality rate as of people between ages 55 and 60, most of whom will have life insurance. When seen from this perspective, life insurance for kids looks to be a reasonably sound idea.
How do I Get a Child Term Rider Added to My Insurance Policy?
Instead of buying a separate child’s life insurance policy, you can buy coverage for your kid by adding a child term rider to your current life insurance policy.
You can get the rider when you buy a life insurance policy or you can add it later. Since there’s no underwriting for a child term rider, your child won’t require a medical exam. However, the insurer may ask a few health-related questions.
A single child term rider will cover all your current and future children. You don’t even have to inform your provider of each child you have; he or she will be covered automatically.
What’s the Difference Between Children’s Whole Life Insurance and a Term Life Insurance Child Rider?
When it comes to kid's life insurance, the two most popular options are a child term rider and whole life insurance. Here’s the rundown of their main features.
Child Term RiderWhole Life InsuranceAn additional benefit bought on the parent’s or legal guardian’s insurance policyAn independent life insurance plan purchased specifically for a childOnly a parent or legal guardian can purchase itA parent, legal guardian, or grandparent can purchase itProvides coverage until the child reaches the age of 22 or 25 or until marriage, whichever comes first.Provides lifelong coverageCoverage amount is limited, typically up to $30,000Can buy a policy with a large death benefitDoesn’t build cash valueBuilds cash valueYou make premiums payments throughout the policy termYou can choose to pay off the policy early, say in 10 or 20 years. The coverage, however, lasts as long as the insured lives.
This should give you a clear picture of what features are in each policy to help you decide which one works better for your family.
When Can You Get Life Insurance for Children?
You can buy life insurance for a child at any time, including almost immediately after birth. Most life insurers let you buy coverage once a newborn is 15 days old.
Can a Children’s Insurance Policy be an Alternative to RESPs?
The answer is YES.
Canadian parents who want to save for their children’s higher education have a strong savings tool at their disposal — the Registered Education Savings Plan (RESP). Yet, an RESP alone may not be enough to cover your kids’ higher education.
The maximum lifetime amount you can contribute to a child’s RESP is $50,000. Given the rate at which tuition fees are rising, this amount may prove insufficient to cover the cost of a college education. Also, funds from an RESP can only be used for pre-approved educational institutions.
Because of these limitations, many parents in Canada use whole life insurance as an alternative to an RESP or to supplement it.
A whole life insurance policy includes an investment component. Money in this account grows on a tax-deferred basis. That means a whole life insurance policy can provide you with a pile of tax-free money, which you can use for any purpose, like paying a college fee.
Insurance CompanyMaximum Coverage Maximum
Coverage PriceCanada Life$25,000$13$5Empire Life$25,000$10$4RBC Insurance$30,000$15$5Canada Protection Plan$20,000$6$3BMO Insurance$30,000$18$6
This should give you a clear picture of the price range for different companies and the coverage amount.
So, should you buy life insurance for children? Well, at the end of the day, it’s your call. But, for sure, it’s an affordable and valuable addition to your own term life policy, through a child rider.
Do you feel that you need a bit more guidance? Feel free to check out our Check My Price button and a representative from Dundas Life will be happy to help you get a quote tailored to fit your family’s needs.