Life Insurance for Children: To Buy or Not to Buy? (Parent Guide)

What is life insurance for kids?

Life insurance for children in Canada is a policy where the child is the policyholder, not the parents. It pays out a death benefit if the child passes away. The parents are typically the beneficiaries, so they get a lump sum death benefit to help cover final expenses upon the death of the child.

There are 2 types of life insurance for children:

• A standalone individual policy: A permanent life insurance policy (like whole life) bought directly for the child
• A child rider: Add kids’ coverage to an existing adult’s policy 

Reasons for getting kids' life insurance include:

• Get help covering final expenses in the event of a child’s passing
• Lock in a good rate on a whole life policy for the child

For most parents considering life insurance, policies for your kids are probably not the best way to build financial security for your family. Instead, secure your child’s financial future by getting your own life insurance policy — especially if you’re a single parent.

“Protecting your child financially starts with getting coverage for yourself as a parent. You have to put on your oxygen mask first before you put on someone else’s.” — Stephanie Roux, Life Insurance Advisor 

* Every PolicyMe policy comes with $10,000 of free life insurance for each of your kids.

Is life insurance for children worth it?

In most cases, no, a life insurance policy for your child isn’t worth it.

For the average family who is still paying down debt and still behind on savings, a child’s life insurance policy is not the smartest way to create a financial safety net. Here are some other ways to provide financial stability to your family:

• Adult life insurance policies (coverage for the parents)
• Savings and investment accounts
• Paying down debts

In short: your money will go further protecting your own financial foundation before considering a policy for your child.

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Take note

There are circumstances where getting life insurance this young makes sense, but it’s not for everyone. The infant mortality rate in Canada is 0.44%, making the need for life insurance on a small child very unlikely.

 When does life insurance for children make sense?

Here are three situations in which a child’s life insurance policy may make sense:

• Your family history includes serious health conditions
• You already have a sizable emergency fund, savings for retirement and no debt
• The child earns substantial income (actor, model, social media)

In other words, consider life insurance for your kids only if all your other financial priorities are taken care of for your family. Remember to make sure that you have adequate life insurance coverage on yourself first to protect your child if you were to pass away.

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Did you know?

Your life insurance coverage at work is probably not enough on its own.

These policies generally only payout 1-2x your annual salary. Whereas the average Canadian with separate life insurance has 3.5x more coverage than someone with just life insurance from work.

Pros and cons of life insurance for kids

Child and parent policies function the same, so the benefits and drawbacks of these insurance products are virtually the same.

Pros of children's life insurance

Doubling as a savings plan

Whole life policies give lifelong coverage and include a savings component. Your investment grows with interest and it can be used for anything, from tuition fees to a down payment on a house. Many parents see it as a savings fund and investment option.

Children’s life insurance is cheap

A child’s life insurance policy locks in a low rate that stays low throughout the child’s entire life. Permanent life insurance policies for children are cheaper than adult policies, which means lower premiums overall.

It can guarantee future coverage

In a family with a history of health conditions, the child risks inheriting one. Getting a life insurance policy at a young age ensures the child can keep their coverage later on without fear of being denied. Otherwise, it could mean expensive high-risk insurance for your loved one.

It can serve as an emergency fund

You are the “beneficiary” of the child’s life insurance. If the child passes, you can use the death benefit to cover medical and funeral expenses, counseling and replace income if you need to take time off from work.

Cons of children's life insurance

Saving is slow and using the money has consequences

It takes time to accumulate cash through a life insurance policy. Plus, admin fees and premium payments will reduce the overall cash value. If you choose to tap into the savings, you’ll pay taxes and you’ll reduce the death benefit. If saving is your goal, consider a traditional investment account or a savings plan for better returns.

Life insurance is designed for people with financial dependents

A child’s policy won’t help take care of your kids if something happens to you. Your life insurance premiums could be better spent. Instead, focus on saving for your family’s financial future. Pay off your debt and contribute to an RESP for their tuition as a young adult.

The payouts are limited

The end-of-life payout may be limited on a child’s whole life policy. To get the full protection they need, a grown child may need to purchase more life insurance as an adult. This way, your adult child can get the right coverage when it matters most.

Kids’ policies only cover one type of emergency

Life insurance only pays out if the policyholder passes. Thankfully, the odds of your child passing are slim. You may never need this policy. Instead of buying life insurance, consider building up an emergency fund that can help you weather life's storms.

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Take note

The main con of children’s life insurance is that it doesn’t support your financial dependents.

Since kids don’t earn an income or contribute financially, the payout doesn’t replace lost earnings the way a parent’s policy would. This means the money tied up in premiums could be better used to protect the people who rely on your income.

Types of life insurance for children

Child life insurance comes in two main types: 

• Whole life insurance for children
• Child rider on an adult policy

Whole life insurance for children

Whole life insurance policies for children are the most expensive and most comprehensive.

• Pays out upon the death of the policyholder, regardless of their age
• Provides coverage for the policyholder’s whole life
• Locks in a rate at the time of policy signing

Whole life coverage for kids may be suitable for:

• High-income families who have maxed out their contributions to TFSAs and RRSPs and are looking for another investment vehicle
• Children or families with existing medical conditions that may prevent them from getting coverage later in life

Child riders

A child rider is a low-cost add-on to a parent’s life insurance policy. It provides a modest payout if a child passes away, and can usually be converted into their own policy once they’re an adult.

• Tacked onto a parent’s life insurance policy at a small extra cost 
• Provide coverage until your children reach a certain age
• Coverage amount between $5,000 and $30,000

Adding a child rider onto your life insurance policy might make sense if:

• You want protection for funeral or medical expenses in the unlikely event of a child’s death.
• You want your child to have the choice of converting to their own life insurance policy later, without needing a medical exam.

Note that, while it’s not a “rider”, all term life insurance policies through PolicyMe come with $10,000 of free life insurance coverage for each of your children.

“Think about whether you’re doing this to protect yourself or your kid…. And that will inform the type of coverage and amount of coverage you get.” — Stephanie Roux, Life Insurance Advisor  

Alternatives to kid’s life insurance

There are better alternatives to kid’s life insurance if your goal is to secure financial protection for your dependents.

1. Set up a traditional savings (and investment) account

If you want to save money for your kids’ future, open a high-interest savings account. 

“I'd much rather establish a long-term, easy savings plan that's accessible and does not cost too much money as a parent of grown children.” — Lorna Eastman, CFP and President of Lorna Eastman Financial  

These accounts have two main benefits:

• Easy to set up and access
• Earn more than you’d earn on a child’s insurance policy

Contribute as much as you want, as often as you want. Deposit monetary gifts your child receives from family and friends. Your kid can always use the money in this account to buy their own life insurance policy as an adult, if they want (with extra to spare).

2. Take advantage of government grants to save for your child's education

A Registered Education Savings Plan (RESP) is the perfect, tax-friendly savings vehicle for parents in Canada who are thinking about a child’s future education expenses.

• Your contributions and investments grow tax-free
• Get a 20% boost from the Canadian Education Savings Grant (CESG), up to $7,200
• Get a boost from the Canada Learning Bond (CLB) if you’re low-income
• Withdrawals are only taxed once they’re in school (at a low income bracket)

The best part about an RESP is that even small contributions make a big difference over time.

“Once you have that awareness and ability [to make contributions], it's not hard. It can really help a lot, more than you expect.” — Lorna Eastman, CFP and President of Lorna Eastman Financial  

Look to your province to find out about additional supports for a child’s education, for example:

• British Columbia: B.C. Training and Education Savings Grant (BCTESG) is deposited into the B.C. child's RESP account
• Ontario: Ontario Student Assistance Program (OSAP) provides financial aid for college or university

3. Secure your own policy before buying children’s life insurance

Protect your children’s financial future by securing your own life insurance policy. 

If anything happens to you or your partner, an adult life insurance policy, family insurance policy, or a couples policy will pay out to help protect your family’s financial security no matter your child’s age:

• Cover your medical bills and funeral costs
• Cover daycare bills
• Cover tuition 
• Cover daily expenses

It’s worth the cost to get your own life insurance policy, because you can also add on a rider to cover all of your children until they're adults. Every PolicyMe policy automatically comes with $10,000 in free child coverage, without extra cost!

“The priority is to have the parent(s) insured, making sure their income is secured. And then an extra layer of protection would be a child rider, and then an extracurricular gift would be a whole life policy if the budget allows.” — Stephanie Roux, Life Insurance Advisor  

4. Create emergency and rainy day funds

You need to be able to access cash in an emergency to take care of your family’s stability. 

While an investment account helps your child in the long term, a rainy day fund is for right now. Think last-minute expenses like school-related technology or special events.

Put your money in a high-interest savings account and take it out with no penalty. Otherwise, you’re limited to a life insurance policy that will dwindle in benefits if you pull out emergency cash.

Bottom line: you might not need to buy life insurance for your kid

• For most Canadian families, a child’s life insurance policy isn’t a smart investment, it doesn’t replace income or provide meaningful protection for dependents.
• Parents should prioritize their own life insurance coverage first, since that’s what protects kids if something happens to a caregiver.
• Focus on building financial security through savings, investments, and government programs like RESPs before considering a child policy.
• A child policy only makes sense in specific situations (family health history, no debt, strong savings, or a child with income).

FAQs: Life insurance for kids in Canada