We’re not just talking about planning their first birthday party or saving up for school with a registered education savings plan, either. It may be uncomfortable to think about, but it’s worth considering life insurance as a way to prepare for even the worst what-ifs.
“Life insurance is about the people who are left behind,” explains Lorne Marr, director of business development at Hub Financial and founder of LSM Insurance. “You have to think of it as a financial instrument that will give you time to grieve. You don’t want to have to rush right back to work if a child passes away.”
A life insurance policy for kids isn’t only about the end of life, either. The right plan can have lifelong advantages. So, tuck the youngsters in for a nap and settle in as we break down everything you need to know about buying life insurance for kids. And while you’re at it, brush up on getting the best life insurance for yourself, too.
Do I need life insurance for my kids?
Aside from financially preparing for the possibility of an untimely death, life insurance can help protect and secure your children’s health and finances throughout their lives.
Term life insurance policies are affordable and provide coverage in the form of a death benefit for a set number of years, while permanent life insurance policies (i.e. whole life insurance and universal life insurance) cost more but offer lifelong coverage, as well as a few other benefits. With permanent life insurance policies, which build cash value and typically come with investment options, you may be able to grow an extra nest egg that can help pay for university or a down payment on a home; however, due to their high costs and low rates of return, these policies are typically best suited for high-net-worth individuals who have already maxed out their TFSAs and RRSPs.
Then there’s your children’s future to think about. One of the biggest advantages to insuring your child is that policies can be converted later in life, usually without a medical exam. And even though life insurance premiums increase with age, insuring your child early (or throughout their entire life) can generate savings in their adult years.
“A child may be healthy today, but they might develop diabetes, autism or colitis, which will make getting insurance for them very challenging as adults,” adds Marr. If you lock them into a policy now, they can often convert it into a policy as an adult that’s guaranteed without a medical exam. This feature means their premiums will likely be based on their healthier, younger selves, and will be more affordable than if they applied on their own. Marr says this option depends on the insurance carrier, so ask if it’s available first.
Who doesn’t need life insurance for their child?
At the end of the day, buying insurance is a personal choice. As important as it is to consider the potential costs of a funeral or of a leave of absence from work to grieve, Marr says it doesn’t make sense to overspend on life insurance for your child. He suggests budgeting for your own coverage first—as well as paying off credit cards and lines of credit—before taking on this extra expense. “Have your financial house in good order, and then you can start paying for life insurance for your child,” he says.