Life insurance can be an emotional subject. To talk about it, you have to talk objectively about death – either your own or a loved one’s and there isn’t an easy way to do that. Truthfully, as life insurance providers in North America, we are culturally and professionally biased in favour of insurance, but we understand and respect that for some, conversations like these are considered taboo and insensitive.
We do our best to broach discussions about insurance in a nuanced, informed way and offer our clients solutions that are equal parts compassionate and pragmatic. This is especially true when discussing reasons why guardians should consider insuring their children at a young age. Is this a controversial take for some? Absolutely, but we believe by discussing it, we’re providing people with the necessary information to make informed decisions for themselves and their families.
Our society tends to associate health and vitality with youth, and we see evidence of this in how we react to childhood illness – with heightened dismay and anguish. On the flip side, we share a willingness to view insurance as an adult responsibility – only necessary once we have family members and assets to protect (not to mention a healthy sense of our own mortality).
These proclivities reinforce our communal belief that it is unnecessary and even cold or calculating to insure young children because they should be healthy and free of (adult) responsibilities.
Take a second to think about where you’re at in life and compare that reality to the one your guardian(s) wanted for you. Do they align? How does it fare against what a younger version of yourself imagined? As we grow, we carve out a path for ourselves that likely differs, maybe significantly, from the ones we and our guardian(s) envisioned.
Everyone’s foray into adulthood is uniquely trying, exciting and checkered with missteps. And if you’re human, the number of missteps is probably high. Like us, our kids will make decisions, mistakes, and perhaps questionable choices and each of them could have an impact on their ability to secure insurance.
If you’ve ever applied for insurance, you know that a number of things determine a person’s insurability: age, past and current health, genetics (parents and potentially grandparents health), drug and alcohol consumption, occupation, recreational activities (e.g., vehicle racing, scuba-diving, piloting an aircraft), driving record (e.g., violations, suspensions), travel, etc.
Health outcomes, driving mishaps and potential peer pressure aside, let’s say the child in your life becomes a professional athlete or decides to provide medical aide or disaster relief in another country. Objectively, neither of these are “poor life choices,” in fact, far from it. But, depending on the circumstances, these occupations/vocations could easily hinder them from achieving a standard insurance rating.
The point is, anything can impact a person’s insurability and because there is no way to accurately know or control how someone’s life will unfold, it makes sense to be prepared for, well… anything. The following are a few things worth thinking about.
Securing their insurability
Most of the reasons why insuring a child is a good idea can be boiled down to securing their insurability. The more we do and experience, the more insurance carriers have to consider during the underwriting process. Compared to an adult, a baby is a metaphorical “blank slate,” if not medically then at least in terms of lived experience. The younger a person is when they are insured, the better chance they have of two things: one, getting a standard or exceptional health rating and two, having lower premiums as a direct result of their age. Since health and age heavily determine the cost of insurance, the younger and healthier a person, the cheaper their insurance typically is.
But why does this matter? Because childhood insurance policies, when rolled over and/or converted appropriately in adulthood, can last a literal lifetime. An adult who acquires ownership of their childhood policy locks-in the coverage amount, medical rating and cost of their insurance at the time the policy was placed (so long as they continue to pay the premium).
To put it another way, a 55-year-old with a converted childhood policy and a family, mortgage, and gamut of health issues – that would otherwise make them uninsurable – would have guaranteed coverage equivalent to the cost of a healthy adolescent. The same would be true for the child who grows up to be a commercial pilot, has a penchant for scuba diving, struggles with addiction, or travels frequently to countries deemed “volatile” by insurance companies.
Providing a transferrable asset
Depending on the type of policy, insurance can also give guardians an opportunity to provide their child with a transferrable asset, in addition to coverage. Some permanent plans allow the payor to build tax-sheltered cash value which can eventually be transferred (along with the policy) to the child with no tax consequences.
Think of it like having equity in a home. When the time comes, the adult child can choose to keep building cash value in the policy, or they can make use of it. Although withdrawing the cash value is a taxable event, they have immediate access to funds that can be used for a whole range of things: to pay for post-secondary education, as collateral to start a business or as a down payment for a house.
Acknowledging the unthinkable
No one expects to outlive their child – the thought is horrifying. But acknowledging the possibility, as hard as it may be, isn’t insensitive. Rather, it allows us to be realistic about the impact such a loss would have on us and our family.
For guardians with multiple children, how could losing one affect your ability to continue doing the things you need to provide for the others? Would you be able to give your child the service you feel they deserve, and would grieving in the ways that make sense for your family be possible? For many people, this largely depends on their financial situation: their savings, their debts, and their income and job security. Almost 40% of Canadians in a 2020 survey reported their bank accounts couldn’t withstand a financial emergency.
Depending on the situation, adequate coverage might be just enough to cover funeral expenses or, it could be enough to maintain the household while a family takes time to grieve. Guardians aren’t superheroes, even though they may seem like it so it’s unrealistic to expect them to go about life as usual in the face of losing a child. Insurance provides families with the smallest bit of security in knowing that if the unthinkable were to occur, they wouldn’t be backed into a financial corner on top of dealing with overwhelming grief.
The reasons why someone might insure their child are numerous and may have nothing to do with mortality. But even if they do, acknowledging the possibility of a child predeceasing us and taking steps to protect our family, doesn’t make us cold or calculated. In fact, we believe all the reasons we mentioned for insuring a child are, at their core, rooted in the desire to ensure they and their loved ones are protected and secure as they carve out a life for themselves. In some ways, these motivations aren’t so dissimilar to the ones behind RESPs, RDSPs and in-trust-for (ITF) investment accounts.
For the people comfortable doing so, we suggest thinking about child insurance as a safeguard for your family’s well-being and peace of mind. And perhaps more importantly, we recommend looking at it not as insurance for your child as they are today, but as insurance for the adult they will one day become.
If you have questions about insuring a child in your life, connect with us.