The Why and How of Children’s Life Insurance in Australia

You’ve probably seen at least one commercial for term life insurance offering to extend coverage to your child.

Children’s life insurance usually provides a lump sum benefit in the event your child dies or suffers a critical illness, as listed in your insurers PDS. Child cover means your children can be protected from traumatic events, giving you the option of staying at home to care for them or use the additional funds pay for the best medical treatments available.

Premium free child cover is available through select insurers in Australia.

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What is life insurance for children?

Life insurance for children is available through select insurers in Australia, some offering premium free child cover when attached to an adult’s stand-alone life insurance, trauma, or income protection policy. Should your child fall victim to a traumatic event, your child’s insurance policy can provide you with a lump sum benefit to help pay for medical expenses, or funeral, in the event of their death.

Do children need life insurance?

Children don’t typically need life insurance. Life insurance is intended to pay off debts and help your loved ones maintain their current lifestyle. Most children don’t have mortgage payments, and most families aren’t relying on their children to contribute to the household income.

However, insurance for children often provides cover for a number of traumatic events such as blindness, cardiomyopathy, paraplegia, malignant cancer and severe burns as well as death and terminal illness.

What does children's insurance cover?

Select insurers offering premium free children's insurance will generally pay you a tax-free lump sum of $10,000 to $25,000. If you decide to pay extra to receive more cover, Children's Insurance can pay you a tax-free lump sum up to $250,000 if your child:

• Suffers a traumatic event as outlined in your product disclosure statement (PDS);
• Is diagnosed with a terminal illness; or
• Passes away.

Make sure to check the insurer’s PDS to see precisely what your child is covered for.

Insurance coverage for children will generally pay a lump sum for traumatic events and illnesses, including:

• Benign tumour of the brain with impairment
• Benign tumour of the spine with impairment
• Blindness
• Brain damage
• Cancer
• Cardiomyopathy
• Chronic kidney (renal) failure
• Deafness
• Encephalitis
• Intensive care
• Loss of limbs or sight
• Loss of speech
• Major head trauma
• Major organ transplant
• Meningitis

How does life cover for children work?

• Buy a term life insurance policy covering yourself or your spouse.
• Add on a child rider (an optional extra policy feature) that extends a small cover amount to the life of your child.

Standalone child’s cover is not widely available in Australia.

The benefit amount

Depending on the insurer, you can generally apply for a minimum of $10,000 up to a maximum of $250,000 sum insured.

Select insurers are now providing a child critical illness benefit with income protection policies. This provides up to three times your monthly benefit up to a maximum of $25,000 if your child suffers from a critical illness that is listed in the PDS.

Covering more than one child

Child insurance generally allows multiple children to be covered under one policy, with some insurers allowing up to 10 children to be covered.

Most policies do not limit the number of children you can add to your policy. However, each child must have the same sum insured.

Insurance coverage for children under 18

Depending on the insurer, you can usually apply for child cover if your child is between the ages of 2 and 17 (inclusive).

Insurance for adult children over 18

Before your child turns 18 most life insurance companies will offer your kids a continuation option on their life with trauma policy; usually without medical evidence being required.

Children’s accident insurance

Children’s accident insurance generally provides a benefit in the event of accidental death or injury resulting in major head trauma, encephalitis, meningitis, blindness, deafness, paralysis, and the total and permanent loss of use of two limbs.

Generally, the lump sum benefit will only be paid if immediate impairment or permanent disability occurred within 6 months of the accident.

Can I cover my children under my life insurance policy?

Yes, generally life insurance cover for children are available as an additional benefit in most life insurance policies, providing cover to your kids up to a specific age. However, before paying for such a benefit, you might to first invest your finances in:

• Building an adequate emergency savings fund.
• Making sure mom and dad have sufficient life insurance coverage, TPD insurance and income protection.
• Saving for the children’s college tuition.
• Making sure your retirement savings are on track.

Purchasing children’s insurance vs not having life cover for your kids

Life cover for kids usually triggers a debate. Advocates believe life insurance for children is a great financial tool within their larger insurance portfolio and might assist financially should their child become critically ill.

In contracts, critics assert that such a purchase is a waste of money for most families because term life insurance policies do not guarantee that the child can maintain their life cover when becoming an adult.

For child cover

Against buying insurance for children

Pays for costly specialist medical treatment. Pay for other bills such as your mortgage, school fees, or child care if you have any other children. Provides financing for grief counselling for family members. Safety net if parents need to take time off work to care for children. If your child developed a medical problem early in life, they might have trouble qualifying for affordable life insurance as an adult. Fund home or car modifications. Help ensure your child is as comfortable as can be.

Chance of child unexpectedly passing away or becoming critically ill is statistically very low, so might be wasting money. In many cases, the amount of coverage is too small to provide adequate protection later in life.

Best child life insurance plans in Australia

Many life insurance companies in Australia offer insurance options for children, including AMP, AIA, BT, CommInsure and TAL.

Before buying life insurance for your child take a step back and look at your entire financial picture. Does it make financial sense to purchase life insurance for your children? Talk to your broker and discuss your options.

After determining your needs, compare Australia's top child cover policies to ensure your child receives the best care available should the worst happen.

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