A contentious question is whether to buy any life insurance on your children. Most insurance companies only offer protection on adults. As a result, contracts on children tend to be relatively expensive because of the small coverage amounts and limited competition.
What’s the financial loss?
Life insurance helps replace the economic value of the life lost. If your child is a famous YouTube star and your family relies on the big dollars he/she earns, life insurance may be required. In financial terms, children are likely an expense and financially dependent on you.
The toll on you
If your child does die, the emotional devastation may prevent you from working for many months, which could mean you’re not earning a salary. This is less of a concern if you have generous bereavement leave from work or have a lot of passive income.
Some advisors may argue that insuring your child will allow you to take time off work to recover. Others may say you’ll recover faster by returning to work sooner. Again, this is a difficult discussion about an unlikely event.
Preparing for adulthood
Advisors who encourage you to buy life Insurance on your children use various arguments. One is that your child may not be insurable as an adult. Who wants to contemplate that possibility?
Medicine keeps advancing and conditions that are uninsurable today could become insurable in the future. Since employee benefits tend to include life insurance, your child could get coverage by working for an employer with a group plan. If he/she leaves the employer, the coverage can often be kept and converted to an individual life insurance policy without a medical exam.
A small amount of coverage
Since coverage on a child tends to be small, how much will the life insurance be worth after inflation in a decade or two? You might benefit more by not getting life insurance on your child and instead put the money you would’ve spent on premiums into an RESP or a TFSA.
Unfortunately, there are rare cases of parents killing their children and attempting to claim the death benefit. Insurance companies will want you to have adequate life insurance on your own life and to get coverage on all of your children.
The bottom line
There’s no simple answer to the question of whether or not to insure your children. Perhaps the best way to protect them is by having more life insurance on yourself.