Let's be honest, buying permanent life insurance for a toddler isn't exactly instinctive. So why are more Canadian families buying it for their children? We asked Lawyers Financial insurance advisor, Daniel Cheung. Dan and his wife have a six-year-old daughter and four-year-old son, and, you guessed it, they already have permanent life insurance in place for both kids.
Q. Okay, Dan, just how young were your kids when you
purchased these policies?
A. It's funny. With our daughter, we got her RESP, life
insurance, all that stuff set up right at birth. As soon as we had
her SIN card, we were on top of it. But I'll admit that
"second child syndrome" is a thing. Our son was almost
three by the time we got his policy. He was a Covid baby, so his
forms took longer than normal—his birth certificate
didn't arrive until a month after his 1st birthday.
Q. But why life insurance?
A. There are a couple of reasons. One is protecting their
insurability in the future. A lot of people overlook that when a
kid is so young, but things can change as they start growing up.
Say my son wants to be the next [skateboard legend] Tony Hawk and
do some crazy stunts. Insurance companies might not be so keen to
have him as a client or will but for a price.
Two is the type of permanent insurance we bought, which is called
participating, or PAR. It can give our kids financial flexibility
down the road, with a growing cash value that builds quietly in the
background as they grow up. It's very different from term life
insurance.
Q. Can you explain protecting their
insurability?
A. Buying life insurance for your child might feel a bit strange at
first, but it's really about setting them up for the future. It
locks in their coverage and premiums while they're young and
healthy, and with the addition of a Guaranteed Insurability Rider,
they can add more insurance later in life, like when they buy a
home or start a family, without having to answer any medical
questions. It's a simple way to protect their options, no
matter what life brings.
Q. Why's that important?
A. As parents, we're all assuming that our kids will follow our
educational path and grow up to be professionals, like (ahem)
lawyers, with the student debt to prove it. Getting life insurance
in place early just makes sense. It ensures that their future
family isn't left carrying the financial load if something ever
goes wrong. It's a simple way to protect tomorrow, today.
FOUR REASONS TO BUY PERMANENT LIFE INSURANCE FOR YOUR CHILDREN
1. It's for life
As long as the premiums are paid, the insurance policy is valid for
the rest of your child's life—even if they live to 100 or
more (and we hope they do).
2. Low, locked-in premiums
Buying early can get you get the lowest possible premiums, and they
won't increase with time. Your child at 30 could still be
paying what you paid when they were three.
3. Nest egg, part 1: Tax-advantaged cash value
growth
Over time, a participating whole life policy builds cash value
inside it, with tax advantages under current rules. That value can
be accessed through policy loans or withdrawal* to help pay for
things like education costs or a first home. They can even be used
as collateral for a business loan, giving your child more financial
flexibility in the future.
4. Nest egg, part 2: It's
transferable
You own and control the policy and its cash value while your child
is young, and you can transfer it to them down the road. And good
news: there's no tax consequence when ownership is transferred
from parent to child.
*Accessing the cash value may reduce the death benefit and can have tax implications.
Q. Dan, tell me more about locked in
premiums.
A. Think about all the stuff we pay for monthly, like Netflix or
Spotify—and notice how all these prices tend to go up. But
with permanent insurance, your base premiums are locked in from day
one. So as your own income grows over time, those premiums can
start feeling smaller and smaller.
Let's say you have term life insurance for a 20-year term. In 20 years when it's time to renew, the premium goes up. With permanent life insurance, on the other hand, the policy might be entirely paid 20 years from now.
Q. You can pay them off completely?
A. Yes, we chose that option for our kids. We opted for a limited
pay option, so by selecting slightly higher monthly premiums, the
policy will be fully paid up in 20 years. (Even earlier, if we
choose). After that, no more premiums are required, but the value
of the policy continues to grow, and the coverage is firmly in
place. If my wife and I decide to transfer the policies to our
adult children after that, there's no cost or taxable
consequences for them, and they get the benefits of a paid-up
policy.
Q. So it's life insurance, but insuring a life seems
almost secondary?
A. As parents, we never want to think that our kids are going to
get sick or hurt, and insurance is something you hope never needs
to be used that way. But this is the thing about permanent
insurance and kids, it's really about protecting their future
and giving them more financial options as they grow. Sure, one day,
hopefully at a ripe old age, there may be a tax-free benefit paid
out for their loved ones. But that's not why we put these
policies in place. We did it to build something lasting for them,
to give them a head start and invest in their future, no matter
what life throws at them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
