Buying life insurance for your child can be an emotionally difficult decision. As parents, we never want to think about the unimaginable happening to our little ones. However, being prepared with life insurance can provide financial protection and valuable benefits beyond covering funeral costs.
This guide examines everything you need to know as a Canadian parent when considering getting life insurance for kids. Lifebuzz.ca will cover the pros and cons, types of policies available, costs when enrolling your child, application requirements, and final thoughts to help you make an informed decision.
Do Canadian children need life insurance? Learn when coverage makes sense and better alternatives that protect your child’s financial future.
What Is Life Insurance for Children?
Life insurance for children is a policy a parent, legal guardian, or grandparent purchases for a minor (typically from birth to age 17). The majority of standalone life insurance policies sold for children are permanent, most commonly whole life insurance.
The adult is the policy owner and pays the premiums, while the child is the insured individual. If the child were to pass away, the policy pays a tax-free death benefit to the adult beneficiary. Once the child becomes an adult, they typically take ownership of the policy.
Types of Life Insurance for Children in Canada
If you’ve determined that coverage makes sense, you’ll need to choose between two very different products: a standalone policy for your child or a “child rider” added to your own life insurance policy.
Whole Life Insurance (Standalone Policy)
This is a permanent, standalone policy that covers the child for their entire life, as long as premiums are paid. It’s both an insurance product and a savings vehicle. The key features are:
- Lifelong Coverage: It never expires.
- Fixed Premiums: The premium you lock in when the child is young is guaranteed for life.
- Cash Value: A portion of your premium contributes to a tax-deferred savings component called the “cash value.” This can be borrowed against or withdrawn later in life to help with goals like a down payment or education.
- Ownership Transfer: The child takes ownership of the policy as an adult (usually between 18 and 21), gaining control of the coverage and its cash value.
- No Medical Exam: Usually not required for standard coverage amounts.
Child Term Rider (An Add-On)
A child rider is not a standalone policy. It’s an inexpensive add-on to a parent’s term or whole life insurance policy. For a single flat fee, it typically covers all of the family’s current and future children. The key features:
- Temporary Coverage: The coverage ends when the child reaches a specific age (e.g., 25) or when the parent’s policy expires.
- Lower Coverage: Death benefits are modest, usually between $10,000 and $30,000, designed to cover final expenses.
- No Cash Value: This is pure insurance; there is no savings component.
- Low Cost: A rider typically costs only $5 to $10 per month to cover all children.
- Conversion Privilege: This is a crucial feature. Most riders allow each child to convert their coverage into a new, standalone permanent policy as an adult, without needing a medical exam.
If you decide to get life insurance for kids, you must evaluate the two main policy types available and weigh their advantages and disadvantages.
Choosing Between Children’s Whole Life Insurance and Child Term Rider
Your choice depends entirely on your goal. Are you looking for basic, low-cost protection for final expenses, or are you making a long-term financial gift?
| Feature | Whole Life Insurance | Child Term Rider |
|---|---|---|
| Purpose | Lifelong protection & tax-deferred savings | Temporary, low-cost final expense coverage |
| Duration | Permanent (for life) | Temporary (expires around age 25) |
| Typical Coverage | $50,000 – $250,000+ | $10,000 – $30,000 |
| Typical Monthly Cost | $25 – $100+ | $5 – $10 (for all children) |
| Cash Value | Yes, grows tax-deferred | No |
| Ownership | Transfers to the child in adulthood | Expires, but can be converted by the child |
| Best For | Families with a history of health issues, high-net-worth families, and grandparents providing a legacy gift. | Budget-conscious families seeking a simple safety net for funeral costs. |
The conversion privilege on a child rider is its most powerful benefit. If a child develops a health condition like diabetes or an autoimmune disorder, they can still secure their own permanent policy as an adult, something that might otherwise be impossible or prohibitively expensive.
Do Your Children Need Life Insurance?
The first question many parents have is whether life insurance for kids in Canada is necessary. Here are some benefits of getting life insurance coverage for your kids:
- Guaranteed Future Insurability: This is the single most compelling reason. A policy secured in childhood guarantees coverage in adulthood, regardless of any health issues that may arise.
- Locked-In Low Premiums: Premiums are lowest when a person is young and healthy. A policy purchased for a 2-year-old will be significantly cheaper than one purchased at age 30 for the rest of life.
- Tax-Deferred Savings (Whole Life): The cash value component grows without being taxed annually, offering another avenue for long-term savings.
- Covering Final Expenses: A death benefit provides immediate, tax-free funds to cover funeral costs, which can be over $15,000.
- Financial Breathing Room: The benefit can allow parents to take time off work to grieve without immediate financial pressure.
However, there are significant limitations that you need to consider:
- High Opportunity Cost: The money spent on premiums could almost always generate better returns and provide more relevant protection if invested in parents’ insurance, registered education savings plan (RESP), or Tax-Free Savings Account (TFSA).
- Slow Cash Value Growth: In a whole life policy, the cash value grows very slowly in the early years because most of the premium funds are used for insurance costs and administrative fees. You may contribute far more in premiums than you have in cash value for the first decade or more.
- Better Investment Alternatives: The Canada Education Savings Grant (CESG) offers a guaranteed 20% return on annual personal contributions to all eligible RESPs, a rate no insurance product can match. A TFSA offers greater flexibility and potentially higher returns through market investments.
- Misplaced Priorities: It can create a false sense of security. A family with a $100,000 policy on their child but only $250,000 on a parent has its priorities backward. The loss of the parents’ income is the far greater financial threat.
When Does Life Insurance for Children Actually Make Sense?
Despite the drawbacks, there are three key scenarios where purchasing a policy for a child is a prudent financial decision.
If close family members (parents, grandparents, siblings) have a history of conditions that affect insurability, such as Type 1 diabetes, Crohn’s disease, heart conditions at a young age, certain genetic cancers, or multiple sclerosis, securing a policy for your child is a wise move. It guarantees they will have access to life insurance as an adult, even if they are later diagnosed with the same condition.
For high-net-worth families who have already maxed out other registered savings accounts (like RESPs and TFSAs), a permanent life insurance policy on a child or grandchild can be an effective tool for tax-efficient wealth transfer. Grandparents often purchase policies for their grandchildren as a lifelong legacy gift. They can pay the premiums while the parents remain the policy owners, and the policy transfers to the grandchild in adulthood as a mature financial asset.
In the rare case of a child actor, influencer, or athlete whose income the family relies on, that child has real economic value that warrants insurance. This is a classic income-replacement scenario, just with an unconventional earner.
When Life Insurance for Kids Might Not Be Needed
Certain situations where child life insurance may not be the best use of funds include:
- Tight budgets without room for additional expenses
- Prioritizing other goals like retirement savings or debt repayment
- Having existing policies with child riders that offer sufficient coverage
- Only needing basic coverage, like funeral costs, term insurance can provide
- Wanting to wait until kids are older and higher coverage amounts make sense
As with most financial decisions, your family’s unique situation will determine if getting family life insurance for minors or dependents is right.
Smarter Alternatives for Canadian Parents
Before you consider life insurance for your child, make sure these pillars of your financial plan are firmly in place.
Your Own Term Life Insurance
The single most important financial protection for children is ensuring parents have adequate life insurance. A term life policy is inexpensive and provides a large, tax-free benefit to your children if you die, ensuring their financial needs are met until they are independent adults.
Registered Education Savings Plan (RESP)
This is the superior vehicle for education savings. The government literally gives you money to save for your child’s future. With a lifetime contribution limit of $50,000 per child and a $7,200 lifetime CESG limit, it’s an unbeatable tool.
Tax-Free Savings Account (TFSA) or a High-Yield Savings Account
For flexible, accessible savings, these options are far better than an insurance policy’s cash value. A TFSA allows your investments to grow completely tax-free, and you can withdraw the money anytime, for any reason, without penalty.
What Age Should You Buy Life Insurance for Your Kids?
There is no set age when you must get life insurance for kids. Many companies allow enrollment starting at 14 days old. Here are some common scenarios that may impact your decision:
- Newborn: Wanting a policy for the unexpected loss of a newborn. Some term insurance allows coverage starting at two weeks old.
- Toddler: By 12-24 months, minimizing risk conditions in infancy allows better premiums.
- School-aged: Adding coverage as kids become more independent and face new risks.
- Teenager: Increasing coverage for driving, summer jobs, and college planning.
- Young adult: Ensuring lifelong insurability before health conditions potentially arise.
Statistics in Canada show that the highest childhood mortality risk is in the first year. So, for families wanting early coverage, infant or toddler policies make sense. But any age can work, depending on your risk, comfort and budget.
How Do You Apply for a Life Insurance Policy for Your Child?
Buying life insurance for kids follows a similar process to adult policies. Here are the typical steps:
Decide on policy type and coverage amount
Evaluate your budget, the reason for insuring your child, and the level of coverage you need. Term or permanent death benefit amounts from $10,000 to $500,000 or more.
Choose an insurance company
Research insurers like Sun Life, Manulife, RBC, and others. Compare policy types, prices, conversions, ratings, and customer service.
Designate beneficiaries
Name beneficiaries who will receive the death benefit payout. For minors, this is usually the parents initially. The application process is relatively straightforward. An advisor can assist you through every step as well.
Complete the application
Applications require basic information on your child, like age, health, family medical history, and SIN. You’ll also provide ID, income, and contact details as the owner.
Get medically underwritten
The insurance company will assess your child’s health background. This typically only involves a basic questionnaire unless large policy amounts require a paramed exam.
Get approved and pay the first premium
With approval, you’ll set up payments through pre-authorized bank debits. The parents pay premiums until a child reaches adulthood.
The Bottom Line
Having life insurance for kids can provide financial safeguards and valuable lifelong benefits. As parents, we naturally want to protect our children in every way possible. However, you should know that there are other practical tools to consider. Before deciding to buy, assess your budget, existing coverage, and the need for peace of mind.
The younger you enroll your children in life insurance, the lower the long-term costs. Work with an experienced insurance advisor to review your options and ensure you get the right policy.
FAQs on Children’s Life Insurance in Canada
Can I get term life insurance for a child?
No, insurers in Canada do not sell standalone term life insurance for children. The only way to get term coverage is through a child rider on a parent’s policy.
What happens if I, the policy owner, die before my child is an adult?
A successor owner should be named in the policy documents. If not, the policy becomes part of your estate, which can be complicated. The premiums must still be paid by your estate or the new owner to keep the policy active.
What happens when my child turns 18?
For a whole life policy, ownership and payment responsibility transfer to them. They get a policy with a low, locked-in premium and some accumulated cash value. For a child rider, coverage will continue until the expiry date, at which point they can exercise the conversion privilege.
Is the death benefit taxable?
No. In Canada, life insurance death benefits are paid to the beneficiary completely tax-free.