Considering protective cover for your child? Find out what to look for.
Some life insurance brands will include free child cover with an adults life insurance policy. This provides a lump sum benefit if your child;
- Passes away
- Suffers a traumatic condition that has been specified in the PDS
- Is diagnosed with a terminal illness and is not expected to live longer than 12 months.
What happens when my child reaches adulthood?
Who offers life insurance for children?
|Brand||Child cover amount*||Entry age for children|
|AMP||Between $10,000 and $200,000(Up to 5 children)||3-16 (Expires at age 21)|
|AIA||$200,000.||2-15 (Expires before the age of 21)|
|Clearview||$10,000-$200,000||2-18 (Expires at age 21)|
|Macquarie||$10,000-$250,000||2 – 14 (Expires at age 21)|
|MLC||$10,000-$200,000||3-18 (Expires at age 21)|
|Virgin||$1,000-$50,000||Not stated but expires at age 18|
What are the benefits of child cover?
Of course none of us like to think about anything bad happening to our children, but the fact is that many young children each year are diagnosed with serious medical conditions, and some tragically lose their lives through accidents or illness. Although life insurance cannot stop these events from happening, it can help to ease the financial impact of such events, and in some cases it can give your child a better chance of survival and quality of life. Child cover benefits can enable the policyholder to take time off work to care for their child or to help bare the costs of specialist medical treatment Life insurance for children comes under the trauma insurance category. However, unlike trauma insurance for adults children’s trauma insurance will pay out in the event of death as well as covering a large number of serious health conditions.
Is it worth getting?
Other than the obvious reason of the death benefit as a tax free financial safety net for parents in their worst possible time, there are other reasons why people buy insurance for their children:
- Wealth accumulation and wealth transfer. Purchasing insurance for your child when they are young gives them with the highest possible contribution opportunity, usually referred to as over funding. This is because there is a huge gap between the cost of insurance and maximum contribution allowed. Moreover, the parent owner has the option to transfer ownership of these contracts to their life insured child without incurring any tax consequences.
- Cheaper rates. It is a fact that the younger you are, the lower your premium will be. This is also the case for child cover. The premium can be guaranteed for life and the younger the child is, the greater the possibility they will get preferred or better rates. Parents buy large amounts of life insurance with a long term perspective because the odds are against a child’s premature and also due to the fact that when ownership is transferred, the contract’s value has not been largely eroded due to inflation. What more, they are giving their child the gift of very inexpensive life insurance at very inexpensive rates – for life!
- Protect future insurability. A guaranteed insurability or renewal provision option will allow your child the freedom and flexibility to buy more insurance at standard rates at any point in time regardless of their health or lifestyle habits. If you take on insurance for your child under the a Term Insurance contract and the ownership is transferred to them, they can carry on the existing insurance by simply paying the increased rates when their term insurance policy is renewed.
- Protection for the whole family. Loss, in any form, can cause major lifestyle changes. The loss of a child can also mean the loss of one or both parents’ job or income because of emotional stress. However, although the whole family is under a difficult emotional period, they need not also face the additional nightmare of having no money, or seeing a robust investment portfolio being dismantled and taxed.
Cover example: OnePath Baby Care
OnePath's Baby Care Option will provide a lump sum payment in the event of a complication with pregnancy or with the baby. These payments can help parent offset some of the added expenses that they may occur due to these complications, such as addition medical expenses, special therapy and loss of wages for the mother. It does not take long for these expenses to add up, so this lump sum payment can help parents through this very difficult time. Below is a look at the three key features included in OnePath's Baby Care options available to new parents.
- Pregnancy Complications: This life insurance for unborn babies will pay a lump sum payment of $50,000 in the event that the mother experiences complications with her pregnancy. These complications include disseminated intravascular coagulation, ectopic pregnancy, eclampsia, and hydatidiform mole.
- Congenital Abnormalities: If the baby is born with a congenital abnormality, this life insurance for babies will pay the mother a lump sum payment of $50,000. Various abnormalities are included in this policy, such as deafness, blindness, Down Syndrome, cleft lip, cleft palate, missing hands or feet, dysplasia of the hip, spina bifida, infantile hydrocephalus, oesophageal atresia, trachea oesophageal fistula, transposition of the great vessels, and tetralogy of fallot.
- Death: This life insurance for expecting parents will also provide the mother with a lump sum payment of $10,000 in the event of the baby’s death. This can help to offset some of the funeral expenses. This covers infant death, stillborn births that occur after 20 weeks, and neonatal deaths.
Trauma cover for your child
Many brands now offer child trauma cover as an additional option. This option will provide a lump-sum benefit to a specified amount if your child suffers a serious medical condition. Some general conditions to be aware of include:
- One claim per child covered: If a claim is made for one child, it will not impact any future claims for the other children.
- Payment Limit: If there is a benefit payment for more than one child, the sum of the separate benefit payments cannot surpass the sum-insured.
- Indexation: Generally no indexation applied on Child Cover benefits.
- Age: Child must generally be between the ages of 2 and 18.
- Self-Inflicted: No benefit will be paid for death or a trauma event caused by a congenital condition or an intentional act by the parent or their guardian.
Steps to compare child cover policies
There are a range of policy features and conditions to look out for when comparing child cover quotes from a range of providers. Here are some key considerations to make before submitting your application.
- Flexibility: Is the Child Cover feature able to be added to a range of different policies added by the insurer?
- Conditions covered: Does the provider offer a comprehensive range of conditions for the child to be covered under?
- Premium discounts: Will premiums be reduced if the policy is added to other policies?
- Number of children: Is there a limit on the number of children covered?
- Sum-Insured: What is the maximum benefit payable under child cover?
- Qualifying period: How long must cover be in place before a condition can be claimed for? This is generally between 30 and 90 days.
Key benefits to look out for
There are a range of additional benefits available on some child cover policies that are worth considering when comparing different plans. Some of these include;
- Accommodation Benefit: Life insurance company will reimburse the costs of an immediate family member to a maximum limit per day if the insured child is confined to be due to the trauma they have suffered. Conditions for this benefit are usually that the condition is certified by a medical practitioner and that the life insured is more than 100km from home.
- Continuation of Cover: Cover may continue if the policyholder passes away and there is only the Child Cover under the policy remaining to be paid.
- Conversion of Cover: Cover can be converted to Life Cover for the insured child once they have reached a certain age (usually 21).
When does cover generally finish on child cover policies?
Cover will generally end on child cover plans under the following events:
- Life insurance company pays the full children's insurance lump-sum benefit
- The cover is cancelled or avoided by the insurer
- Date that the insured child passes away
- Date that the policy expires as expressed on the policy schedule
- Policy anniversary when child reaches age 21. At this point it may be possible to convert the sum-insured to life cover.
A financial adviser’s primary responsibility is to make sure the parents are adequately covered. But remember, if the parents have enough cover, they have demonstrated a value for life insurance. They need your help as a financial expert to understand all the benefits associated with the purchase of life insurance on their children.