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Life Insurance for a Child

My Grandfather bought a life insurance policy for me when I was a baby. At the time, he didn’t know what my future would hold. He didn’t know if I was going to be a success in business, happy in life, or even a good or a bad guy. My grandfather simply wanted to do something that would help me in any way he knew how.

People don’t buy life insurance on children in case they die; people buy life insurance on children in case they live. Of course, should the unthinkable happen; a death benefit would help offset the associated costs so parents are not left with the loss of a child, and a debt.

Parents look to their child’s future and set money aside for all sorts of things. Short, medium and long term savings become a part of most people’s lives. Saving for a rainy day and saving for an education are far apart in the scope of the mechanics; however, every type of savings plan is important- including starting an insurance plan.

When it comes to children, life insurance offers some very unique features not found in some other financial products, for example:

  • Tax sheltered growth
  • Increasing death benefits
  • Guaranteed options for future purchases
  • Non-taxable transfer of ownership
  • A Secure savings program
  • Waiver of premiums if a parent dies
  • Premiums based on child’s age at issue
  • Access to liquid cash values
  • Creditor Protection


As in any Whole Life policy, a policy for a child provides growing cash value where money accumulates securely, free from creditors. In addition, because of the Revenue Canada rules on life insurance, the growth is completely tax free while kept inside the policy. The eventual death benefit is also tax free.

Death benefits do not need to remain stagnant. With the use of dividends in a “participating policy” the future death benefit continues to climb through the use of “Paid Up Additions” For example for a newborn baby girl at the amount of $25,000 the whole life policy can almost triple to $74,000 by age 20 with the current dividend scales of one carrier. Note that dividend scales are not guaranteed and values are expected to change with time.

A policy which contains a guaranteed insurance option provides a written guarantee that the child can increase the coverage later in life when the need arises according to the terms of the policy. Current policies for children might carry an option to increase coverage by up to $600,000.  These options can be exercised without medical examination. This is a pure gift for a child who may have become uninsurable.

The parents have the right based on Revenue Canada’s tax rules, to transfer a policy to the child whenever the parents decide the child should own the policy. In addition to the values remaining being protected from creditors, a policy can be transferred to the child free from any tax consequence.

The cash value in a policy continues to grow. Access to this secure savings is available to the policy owner. People often access the money and often repay it to the policy. Using the money and repaying it does not affect the long term growth of the policy.

If the owner of the policy (usually the mother or the father) dies or becomes totally disabled, the insurance company can take over the premium payments if a waiver of premium is purchased. This makes the policy self completing.

My grandfather is long since gone and I miss him dearly; but I will always remember him, for many things. Not the least of which are the financial lessons he taught me which are found in that little life insurance policy which bears his name.  

If you are in Nova Scotia and would like to discuss purchasing a Life Insurance policy for your child or grandchild, please contact me at: 
902-444-7000
corry@maritimewealth.com 

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