A Guide To Life Insurance Policies for Children

The thought of purchasing life insurance for a child may shock some parents.

After all, why would you insure a child? It's not a subject we want to think about, but the truth is that a child's unexpected illness, injury, or death can hit a family extremely hard, both emotionally and financially.

Child cover is a type of insurance that can give much-needed financial support at a time when you need to focus on your family.

What is child cover?

The specific details of child cover will differ between insurers, so it's a good idea to compare policies. In general, child cover pays a lump sum benefit in the following scenarios:

• Your child passes away

• Your child is diagnosed with a critical illness, and is likely to pass away in 12 months

• Your child suffers a trauma that is included in the Product Disclosure Statement (PDS) for your policy

Child cover is usually a 'rider benefit' that is attached to a parent's life insurance policy.

Standalone child cover policies are rare; in most cases the parent will need to add their child to an existing policy.

It is possible to insure multiple children, though each fund will allow a different number of children and may cap the benefit level.

For example, you may insure three children for $100,000 each, but the maximum benefit level might be capped at $250,000 for all three children combined.

You should also be aware that if a child cover claim is paid out, it may reduce the overall benefit amount of the parent's policy.

What trauma events are included under child cover?

Each insurer must provide a detailed description of what's covered under the policy in their PDS.

This usually includes death or a terminal illness, but may also include trauma.

Here are some of the 'events' that may be covered under an insurer's definition of trauma:

• Bacterial meningitis

• Blindness

• Deafness

• Encephalitis

• Loss of limbs

• Major organ transplant

• Paralysis

• Severe burns

• Stroke

If your child experiences one of the traumatic events covered by their policy, you can make a claim.

Which insurers offer child cover?

Many insurers in Australia offer child cover as part of their life insurance product suite.

In fact, many insurers will offer a premium-free partial benefit and insure your child for $10,000 to $20,000 at no additional cost to you.

In most cases, you have the option of boosting that benefit by increasing your premium.

Insurers offer varying levels of cover and usually have a set age of entry for the child.

How much coverage is available?

Child cover is not intended to meet the same needs as life insurance for adults.

Though the concept is the same, a lump sum benefit paid out on a person's death or critical illness diagnosis, the purpose is slightly different.

Children are typically not income-earners, and the family is not dependent on their income to survive.

Child cover, then, is designed to provide short-term financial support for the family.

Coverage options are usually between $10,000 and $200,000, though some insurers may offer a higher benefit level.

What are the benefits of child cover?

It may feel unsettling to get life insurance for your children; it might make you upset to even think about it.

As parents, your focus is on keeping your child healthy, not creating a contingency plan in case something happens to them.

But thinking about child cover is part of protecting your family.

If something does happen to one of your children, child cover can provide financial support to cover costs like medical expenses and loss of income if you take time off work.

In the case of a terminally ill child, it can help make their final days more comfortable.

Taking out cover for your child could also give them access to life cover as an adult.

For example, if you take out child cover when your child is young and they develop an illness as they get older, they cannot be kicked off the policy.

However, if you don't take out the policy and they develop an illness, they may not be able to get life insurance at all or their premiums may be very high.

When should I get child cover?

The younger your child is when you get child cover, the better.

If something does happen and your child is diagnosed with a critical illness, you cannot retroactively add them to your policy.

You must have child cover in place before a crisis event occurs.

Are there waiting periods for child cover?

As with most forms of insurance, there are waiting periods associated with child cover.

Your child will likely need to be covered for a minimum of one to three months before any claims can be made.

When does child cover expire?

Child cover usually expires when a child turns 21, though this may vary by insurer.

Some policies will allow your child to transition to an adult life insurance policy from the age of 16.

A policy also ends when a claim is paid out, as long as there are no remaining children on the policy.

How do I know if child cover is right for my family?

Choosing whether or not to buy child cover is a personal decision.

There's no way of knowing for sure whether it's the right choice for your family, but you can weigh up the contributing factors.

Here are a few questions to ask yourself:

• Do I have enough savings to cover expenses if my child were to pass away or become critically ill?

• How might the emotional trauma of losing a child affect our family's finances?

• Are there any genetic factors at play that could affect my child's health?

• Does my life insurance offer premium-free child cover that I could build on?

How much does child cover cost?

Each insurer sets their own price for child cover.

Depending on your policy, you may be able to access $10,000 to $20,000 of cover premium-free.

Many insurers price child cover in increments of $10,000, meaning you pay a certain amount for each $10,000 of cover you take out.

There are lots of policies on the market, so shop around to find one that offers the coverage you want at a competitive price.

Matthew Lang is the general manager of life insurance at Compare Club. Matthew leads a team of dedicated professionals who are passionate about helping individuals and families make informed decisions about their life insurance needs. Whether it's finding the right coverage for your specific circumstances, comparing policies, or optimizing your existing policy, Matthew and his team are here to provide expert guidance and support.

Meet our life insurance expert, Matthew Lang

Matthew's top life insurance tips

• 1

  Identify what you want out of life insurance before you buy. Knowing the purpose of your life cover will help you choose a policy that meets your needs.

• 2

  It's easy to assume that the sole purpose of life cover is to leave money behind for your family, but there's more to it than that.

• 3

  Life insurers like those on our panel pay an average of 97% of claims in full.

• 4

  There are different types of life insurance, including term life insurance, income protection, trauma cover and total and permanent disability cover.