In Canada, moms and dads are parents to 5.8 million children under 14. Many of them toll away an average of 40 hours a week at work to provide for their families. They spend about 25% of their income to meet the needs of their little ones.
That’s because, for parents, their kids are their pride and joy. As a mom or dad yourself, you want only what’s best for them. You want to make sure you can provide for them, even after you’re gone, which is why you bought a life insurance policy.
But what about life insurance for kids? Have you considered getting a policy for them too? Most likely, you haven’t even thought of it.
After all, no parent wants to think of losing their child.
But there’s more to life policies for children. We’ll cover all the important stuff you need to know, so keep reading!
Does Your Little One Need Life Insurance?
If you already have a life insurance policy, then you know that it’s for financial protection. It’ll provide your dependents with means to cover expenses in case you pass away. Your survivors can use the payout to pay for loans and to support themselves until they can get back on their feet.
If you don’t have a life insurance policy yet, it’s best you consider getting one before you buy one for your child. Remember, it’s you they’re depending on, not the other way around.
But let’s say your life is already insured. Does it make sense to do the same for your kid? That depends on your household’s financial situation and your child’s “insurability”.
The quick takeaway here is that life insurance for children does have benefits. As such, the question should be more about what these benefits are rather than if your kid needs one.
So… When Does Buying Life Insurance for Kids Make Sense?
Knowing the benefits of kid’s life insurance will help you figure out if – and when – to get one. So, here are the most common reasons that prevent parents from taking out a life insurance policy for their little ones:
To Protect a Child’s Insurability
Life insurance is pretty difficult to obtain for adults with health problems. As such, you may want to get children’s life insurance while they don’t have such health issues yet. If a medical condition affects your child later in life, this won’t affect the coverage you got him/her.
Be careful when choosing a life insurance provider though. Make sure the contract specifies your kid won’t lose coverage in case he/she develops an illness.
To Secure the Best Rates for Their Child
Life insurance premiums get more expensive with age. That’s why the longer you wait before buying, the pricier your premiums.
As such, insuring your child now means lowering his/her life insurance policy costs. That’s because your child will pay for the same premiums that you can secure now. Since he/she is still young and healthy, then that would make a huge difference!
Plus, buying a policy now for your kid helps you keep your child protected throughout the life of the loan. Again, make sure the insurer indicates no change in premiums will happen. Read the fine print and ask as many questions before signing the dotted line.
Once You’ve Determined You Can Handle the Extra Expense
This is the most important and practical factor you need to consider. You should get your own life insurance first before taking one out for your kid too.
That said, calculate your expenses and make sure you’ve looked at your budget first.
Consider all your household and childcare expenses (including education costs). Then, add your loan payments to the list. If you have other insurance policies, don’t forget to factor in your payments for them too.
Add all these expenses and then subtract them from your household income.
Do you still have enough to save and put away? How close are you to reaching the “magic number” of $756K for retirement savings? Do you even have enough to cover expenses for unforeseen life situations?
If your family doesn’t have private health insurance yet, you may want to prioritize this. Once you’ve covered all grounds for potential expenses, look at your budget again. That should give you an idea of whether you can afford the extra cost of children’s life insurance.
If the figures prove you do, then that’s a good time to consider insuring your little one.
Getting a Life Policy with a Cash Value for Your Kid
You can get a permanent life insurance policy for child with a cash value component. Such policies offer the added benefit of an actual investment. These products accumulate cash value over the years they’re paid for.
The insurer sets aside a portion of the monthly premiums you make towards the policy. The longer you keep the policy (and pay the premiums on time), the bigger the amount it accrues. In essence, it serves as a small nest egg for your child’s future use.
You can even use the cash you accumulated in case you find yourself in a financial pinch. This can be any emergency situations, such as hospitalizations. You can borrow or withdraw against the policy’s cash value and use the money to cover these expenses.
Once your child becomes an adult, he/she often has two options for the policy. One is to turn the policy in for the entire cash value it accumulated over the years. The other is to keep the policy and pay for the same premiums you did while he/she was still a child.
Note that not all life insurance for children have this “cash value” component. So, make sure the insurer explains everything in detail before you sign that contract. There are also rules and exceptions, so be sure you understand those too.
The Amount of Coverage to Get for Your Little Ones
To parents, it’s unthinkable for a child to leave the world before them. However, this happens, and it’s more common than you think.
In 2015, there were 3,965 deaths among U.S. children between the ages of one and four. For kids between five and 14, it was a shocking 5,411 deaths. We don’t have the exact figures for Canada, but this should already give you some idea.
That said, it helps to prepare your family’s finances in case one of your children dies. The rising funeral costs, now averaging $6,000, are only a part of such costs. You and your spouse would also want to get off from work, even receive counseling for the death of a loved one.
All those expenses would leave your family with an even greater burden. In fact, they’re the last thing you want to think of since all you’d want is to mourn your child. But once the bills do arrive, you’d have to face your financial obligations.
Which then brings us to the next question, “How much life insurance coverage should I get for my child?”
It depends on your financial situation. As a good rule of thumb though, it should help cover at least six to 12 months of your household income.
If the unthinkable doesn’t happen, which we hope never will, then your child has the option to keep the policy. Or, if the policy has a cash value, convert it into actual money and use it for his/her future.
Should You Consider Term Life Insurance for Children?
At the moment, there are only two ways to get life insurance for your kids. One is through the above-explained permanent or whole life insurance. The other is by getting a child rider added to your own term life insurance policy.
That’s because there are no standalone child term life insurance policies. But if you buy the rider feature, you can include your kid in your term insurance. In this case, the rider coverage will expire when the actual policy does.
This makes it far cheaper than a permanent life insurance for children. But that doesn’t mean it’s already the best option. Also, keep in mind that term policies don’t have a cash value component.
At the end of the day though, the final decision still rests on your shoulders. Again, keep in mind your budget and financial means to pay for your child’s insurance policy. Although permanent life insurance offers more benefits, it does so at a greater cost.
Comparing Your Options for Life Insurance for Children
If you do decide to get life insurance for kids, make sure that you shop around. Take the time to compare as many offers as possible. This is the only way you can make certain you’ll get the best possible deal.
If you already have your own life insurance, talk to your insurer about adding your child in it. You should also ask them about permanent life insurance for children. Once you’ve made your choice, read and re-read the contract to make sure you know what you’re getting into.
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