The Lifelong Benefits of Baby Life Insurance
Baby life insurance can be a meaningful investment in your child’s future. From affordable, lifelong protection to an investment component they can access later in life, discover the benefits of whole life insurance for children...
When you hold your new baby for the first time, it’s only natural to want to protect their future. One way many Canadian parents do this is by purchasing baby life insurance — a whole life policy designed to offer lifelong protection, guaranteed premiums, and built-in savings through cash value.
Although the idea of buying life insurance for a newborn might feel unusual at first, it’s actually a long-term financial gift that becomes more valuable the earlier you get it. (No kidding!)
Keep reading to understand why baby life insurance can be a meaningful investment in your child’s future.
What is baby life insurance?
Baby life insurance is a whole life insurance policy purchased for a child – usually in their first year – that provides coverage for life, payments that will never go up, and the potential for significant growth thanks to the cash value1 portion of their policy. This money can be accessed later in life when they need it most.
Parents or grandparents typically own the policy until ownership is transferred to the child when they reach adulthood.
Top benefits of purchasing baby life insurance
Of course, no parent wants to think about the dangers that may lie ahead, but we all want to keep our babies safe – no matter their age. Investing in your little one’s financial future is one way to protect them (and possibly their babies – your future grandchildren!) when you may not be around to do so anymore. Below are the top benefits for purchasing baby life insurance.
The most affordable time to buy life insurance
When it comes to buying life insurance, earlier is always better. Getting a policy for a baby allows you to lock in some of the lowest possible rates for life. That’s right, newborn policies are typically very affordable — typically less than a family might spend on take-out coffee for a month. But keep in mind, the cost increases with every birthday, so buying early avoids higher costs later.
And some insurers, like Serenia Life, offer special first-year incentives. Our Bundles of Joy Benefit provides families with a $100 baby bonus when coverage is purchased within a child’s first year – a little financial boost for parents who are dealing with a lot of new expenses.
Think of it as a long-term, tax-preferred investment in your child’s future
Baby life insurance policies do more than provide protection — they also include an investment component that grows quietly over time, on a tax-preferred basis. The best part? Down the road, that accumulated value can be accessed to help support some of life’s biggest milestones, such as:
- University or college tuition
- A down payment on a home
- Wedding or travel
- Emergencies
- Retirement
With decades of tax-preferred growth potential and the flexibility to access those funds in the future, baby life insurance can be a financial head start to support your child through many stages of life. It’s also a great way to supplement a child’s RESP — since funds aren’t tied to a single purpose, like post-secondary education, and can be accessed for whatever path your child chooses.
Easy to transfer ownership when the time is right
As the owner of the policy, you are responsible for making the payments (otherwise known as the “premium”). In the future, it’s pretty simple to transfer ownership of the policy to your adult child – possibly tax-free – under rules set out in the Income Tax Act. (For more information on this tax-savings opportunity, we recommend speaking to an accountant.)
As the new policyowner, your adult child can choose to name a new beneficiary (i.e., the person(s) they choose to receive their life insurance payment in the event of their death) – like their spouse or children – as they step into your shoes and begin to think of their loved ones’ financial futures.
Pro Tip! If you don’t want your child to worry about taking on the payments in adulthood, speak with an advisor about the 20-pay whole life option – where payments stop after 20 years, but coverage lasts for life.
A whole lot of guarantees (cost, cash value, lifelong coverage)
One of the biggest advantages of baby life insurance is the certainty it provides. From cost to coverage, many policies come with built-in guarantees that remove a lot of the “what ifs” from a family’s long-term planning. And with whole life insurance, the guarantees come in threes.
- Guaranteed premiums
When you buy life insurance early, you can lock in rates that are typically the lowest they’ll ever be. This means that the cost will never go up due to age, health, or economic conditions. This provides families with predictable, manageable payments over the life of the policy. - Guaranteed cash value
In addition to coverage, many policies build guaranteed cash value over time — that investment component we keep mentioning – that grows on a tax-preferred basis. This is money your child can access when they really need it. Note that whole life policies also offer non-guaranteed growth via dividends2. - Guaranteed lifelong coverage
While protection isn’t usually the main reason parents buy baby life insurance, it may end up being one of the most important benefits when your child has a family of their own. Because coverage stays in place for life, there’s no need for your child to requalify or worry about future insurability. Plus, the guaranteed death benefit will mean your child’s future family is protected financially.
With guaranteed costs, guaranteed value, and guaranteed coverage for life, baby life insurance offers a level of certainty that’s hard to find elsewhere — and peace of mind that lasts well beyond childhood.
Plus, a bonus guarantee – Optional Guaranteed Insurability (GIO)
At the time of purchase, you can add an extra something to your baby’s policy for just a few extra dollars a month. It’s called the Guaranteed Insurability Option (GIO), and it will give your baby the freedom to purchase additional life insurance later – without the need for a medical exam. This is huge, considering a person’s current health status and other risk factors determine the price of their plan.
With a GIO, your child won’t have to worry that an unexpected illness, a high-risk career, or participation in extreme sports might make life insurance significantly more expensive down the road.
Comparison: Baby life insurance vs. no policy
To better understand the benefits of baby life insurance, take a look at the side-by-side comparisons below.
1. Lifetime protection |
|
|---|---|
| ✔ The cost is locked in for life ✔ Coverage lasts forever ✔ Investment component ✔ Guaranteed death benefit | ✘ Cost rises every year ✘ Coverage only if affordable or medically eligible later ✘ No cash value growth ✘ No guaranteed protection |
2. The lowest rates you’ll ever get |
|
|---|---|
| ✔ Cost for a healthy newborn is the lowest it will ever be ✔ Costs never increase ✔ Often cheaper per month than a daily take-out coffee ✔ Guaranteed death benefit | ✘ Higher cost in adulthood – every birthday increases cost ✘ Child must buy their own coverage later at higher cost |
3. Built-in, tax-preferred savings for the future |
|
|---|---|
| ✔ Investment component grows tax-preferred ✔ Access to money that can help fund: - Education - A first home - A wedding - Travel - Emergencies - Retirement | ✘ Higher cost in ✘ All savings must come from other investments ✘ Investment opportunities may or may not have tax-preferred growth ✘ No built-in ‘emergency fund’ created for your child |
4. A gift they can inherit easily |
|
|---|---|
| ✔ Easy hand-off to your child when they’re older ✔ Child enters adulthood with protection & savings already in place | ✘ No transfer of wealth ✘ Child must purchase their own coverage when they’re older |
5. Guaranteed insurability for the future |
|
|---|---|
| ✔ Add a GIO rider at the time of purchase so your child can buy more coverage later— regardless of health issues | ✘ No guarantee they’ll qualify for coverage later ✘ Illness or medical conditions could make it unaffordable or impossible to get coverage |
Bonus: Newborn-only incentive |
|
|---|---|
| ✔ Eligible for first-year perks, such as Serenia Life’s $100 Bundles of Joy Benefit | ✘ Miss out on early bonuses and lowest rates |
Get a quote
One of the best ways a parent can set a baby up for financial success is by purchasing life insurance while it’s still super affordable. To learn more about how life insurance fits into your financial plan, book a no-obligation consultation with a Serenia Life advisor to get a quote today!
Frequently asked questions
- Is baby life insurance worth it?
- How much does life insurance for a baby cost?
- What is the cash value in a child’s life insurance policy?
- What is the Guaranteed Insurability Option (GIO)?
- What happens when my child becomes an adult?
Disclaimers
1Cash values are accessible via a withdrawal, policy loan or surrender. These may be subject to taxation and a tax slip may be issued. Accessing the cash value of the policy will reduce the available cash surrender value and death benefit.
2Dividends are not guaranteed and are paid based on the overall experience of Serenia Life Financial, considering all risk factors. Dividends may be subject to taxation. Dividends will vary based on the actual investment returns in the participating account as well as mortality, expenses, taxes, lapses, withdrawals, and other experience of the participating block of policies. These factors have the potential to increase the value of your policy above the guaranteed amount, depending on the dividend option selected.
