Life and Critical Illness Insurance for Children in Canada: What the Numbers Show

Most parents do not like to think about a child becoming seriously ill, and nobody should be pushed into insurance by fear. But the numbers exist, they are published by Canadian public health authorities, and they tell a story that surprises many families: serious childhood illness is uncommon, survival is now the usual outcome, and the heaviest cost of a diagnosis often lands on the parents' time, travel and income rather than on the hospital bill.

That story is the honest starting point for two questions parents ask: should we insure our child's life, and should we buy critical illness coverage for a child or a baby? This guide sets out the Canadian figures, explains what each kind of coverage does and does not do, shows why the age at application matters, and ends with the reasons to say no. It is written by someone who is paid by insurer commissions when a policy is bought, which is worth knowing as you read.

Why talk about insuring a child at all?

Because a child's health today decides what insurance the child can get tomorrow, and because a serious illness in a child is expensive for the family even when the child recovers. Neither reason replaces the first priority: protecting the parents' own lives and incomes.

Insurance on a child is different from insurance on an adult. A child earns no income, so the usual reason for life insurance, replacing a paycheque, does not apply. What applies instead are two quieter reasons.

• Future insurability. Insurers price and accept applications based on health. A condition that appears at 8, 15 or 25 can make coverage harder or impossible to obtain for the rest of that person's life.
• The cost of surviving. When a child is seriously ill, parents miss work, drive long distances to specialized hospitals and pay for things public health care does not cover. That cost is carried by the living family.

A life insurance contract on a child answers the first reason. Critical illness coverage on a child answers the second. The guide on insuring a child, and what the contract is actually for covers the life contract in detail; this page puts both side by side with the figures.

What do the Canadian statistics say about serious illness in children?

Serious childhood illness is uncommon, but not rare. About 1,000 Canadian children under 15 are diagnosed with cancer each year, congenital heart defects occur in about 21 of every 10,000 births, and several thousand young Canadians are diagnosed with diabetes each year, mostly type 1.

Here are the figures from Canadian public sources, each with its date.

Figures are rounded as published. Some are older than others because that is the most recent national figure available; newer provincial studies exist.

Read the table calmly. Most children will never face any of these conditions. But across a school of 500 children, it would not be unusual for several to be living with one of them. And each of these conditions, when it happens, lasts for years, not weeks.

Why does survival change the financial question?

Because most children now survive serious illness, the financial burden falls on a living family for months or years. Travel, time off work and care at home cost far more than most parents expect, and public programs replace only part of it.

Forty years ago, a diagnosis of childhood cancer often ended within a year. Today, the Statistics Canada study found a predicted five-year survival of 84%, and children who survive the first five years have a very good chance of surviving the next five. That is wonderful news. It also means the question for the family is not "how do we pay for a funeral" but "how do we get through two years of treatment."

A study of families of children newly diagnosed with cancer in Ontario measured what that looks like. In the first three months alone, median direct costs were $3,503 per family, and median time costs, mostly time taken from work and from the household, were $23,130, in 2007 dollars. Travel was the largest direct cost. None of this is paid by provincial health insurance.

Government support helps, but it has limits. The Employment Insurance family caregiver benefit for children offers up to 35 weeks of benefits to eligible caregivers of a critically ill or injured child under 18, and the weeks can be shared between caregivers. It replaces only part of earnings, up to a weekly maximum, and a self-employed parent may not qualify at all unless registered for EI special benefits. Provinces add their own programs, which vary.

This is the gap that critical illness insurance on a child is designed to fill: money that arrives as a lump sum when the diagnosis is made, to be used however the family needs.

What is critical illness insurance for a child?

It is a contract that pays a lump sum if the insured child is diagnosed with a condition listed in the contract and meets its exact definition, usually after surviving a waiting period such as 30 days. The family decides how to use the money.

The Autorité des marchés financiers describes critical illness insurance in plain terms: the insurer pays an amount if the insured suffers from a critical illness that satisfies the definition in the contract, and the insured must typically survive for at least 30 days after diagnosis. It can be bought on a child or a grandchild.

Three features matter most for parents.

• A lump sum, not a reimbursement. The benefit is not tied to receipts. It can pay for a parent's unpaid leave, a hotel near a children's hospital, therapy, a modified vehicle or simply breathing room.
• Definitions decide everything. A condition that is not listed, or that does not meet the contract's precise definition, is not paid, even if it is serious. The AMF gives the example of a covered illness category where the insured's particular form of the illness was not covered.
• Pre-existing conditions are excluded. A condition diagnosed, or showing signs, before the application is normally not covered. This is why timing matters so much for children.

Some contracts designed for children also offer a return of premium option, which refunds some or all premiums if no claim is made by a set date. It adds cost, and its conditions vary from insurer to insurer.

Which conditions do children's contracts usually cover?

It varies by insurer and contract. Most cover the major adult conditions, such as cancer, heart attack and stroke. Contracts designed for children often add childhood conditions such as certain congenital heart conditions, cerebral palsy, cystic fibrosis, muscular dystrophy or type 1 diabetes.

No two contracts have the same list, and the list can change between product versions. When comparing, look at three things rather than the number of conditions on the brochure.

1. Whether the conditions most relevant to children are included. A list of 25 adult conditions may cover less of a child's real risk than a shorter list built for children.
2. How each condition is defined. For example, a congenital heart condition may be covered only if it requires surgery; a cancer definition may exclude early stages.
3. Waiting and survival periods. Some childhood conditions are covered only if diagnosed after a certain age or after the contract has been in force for a period of time.

Ask for the specimen contract, and read the definitions section with the representative. The benefit you are buying is exactly what those definitions say, no more.

Why does insuring a child young matter?

Because insurability can be lost and cannot be bought back. A child insured while healthy keeps that coverage even if a condition appears later, and a contract with an option to buy more can add coverage in adulthood without new medical evidence.

Most of the conditions in the table above appear without warning, and many of them are diagnosed in childhood. Once a condition has been diagnosed, it is usually excluded from new critical illness coverage, and it can make life insurance more expensive or unavailable.

That is the main reason families insure children young. A contract put in place while the child is healthy is priced and accepted on that health. If the child is later diagnosed with a covered condition, the critical illness contract pays; if the child develops a condition that is not covered, the life contract still stands, and the child's future coverage has been partly secured.

Many juvenile life contracts include a guaranteed insurability option, which lets the owner or the grown child buy more coverage on set dates without new medical questions. For a child who develops a chronic condition at 12, that option can be the only realistic route to meaningful life insurance as an adult.

Premiums set at a young age also tend to be lower, because the insurer's cost of coverage depends heavily on age. That is not a reason to buy on its own, but it means the same budget buys more coverage for longer.

What does a life insurance contract on a child do that critical illness coverage does not?

A life contract on a child secures the child's future insurability for life and, when it is participating whole life, builds cash value over decades that the child can take over as an adult. Critical illness coverage pays only on a defined diagnosis and usually ends at a set age.

The two are often confused because they are sold at the same time, but they do different jobs.

A participating whole life contract on a child is owned by a parent or a grandparent, with the child as the life insured. Its early years cost more than term coverage, because the contract is designed to last a lifetime and build cash value. Over many years, that cash value can become a source of capital the family controls, and ownership can later be transferred to the grown child. Nelson Nash, in Becoming Your Own Banker®, described grandparents insuring grandchildren as one way a family thinks in generations. Dividends on a participating policy are never guaranteed, and a contract on a child is not an education savings plan.

Critical illness coverage on a child, by contrast, usually has no cash value beyond any return of premium option, and it typically ends at an age set in the contract, sometimes with an option to convert. Its job is narrower and more immediate: money at diagnosis.

The guide on who owns a child's policy explains ownership, the transfer to the child and the tax treatment of that transfer.

How do the two coverages compare?

Critical illness coverage answers the cost of a child surviving a serious diagnosis. A life contract answers the child's future need for insurance and, if participating, builds long-term value. They can be held together, but neither replaces the parents' own coverage.

A comparison of typical features. Every contract is different: the specimen contract and the insurer's illustration govern.

How are the benefits taxed?

A life insurance death benefit is not taxable to the beneficiary. A critical illness lump sum paid under an individual contract is generally received without income tax under the approach commonly applied in Canada today. The details depend on who owns the contract and who pays the premiums.

For a life contract, the growth of the cash value inside an exempt policy is not taxed each year. A transfer of the contract from a parent to the child who is the life insured can, under the Income Tax Act, take place without immediate tax in the right circumstances; the guide on ownership explains when. Withdrawals, policy loans and surrenders can create taxable income above the policy's adjusted cost basis under section 148 of the Income Tax Act.

For critical illness coverage, the lump sum paid under a personally owned contract is generally received without income tax. When a corporation pays the premiums on a shareholder's child's coverage, the answer can change, and the premium can become a taxable benefit. Ask your accountant before a corporation pays anything for a family member's coverage.

What are the limits, and the reasons to say no?

The parents' own protection comes first. After that, the limits are the budget, the contract definitions and the exclusions. Insurance on a child is a choice some families make, not a duty.

Say no, or not yet, if any of these is true.

• The parents are underinsured. The loss of a parent's income is by far the larger financial risk for a young family. Life and disability coverage on the parents, and an emergency fund, come before any coverage on a child.
• The premium strains the budget. A contract that is cancelled after three years costs money and leaves nothing behind. Choose an amount you can carry in an ordinary year for as long as the contract needs.
• The definitions do not fit. If the conditions that worry you most are not covered, or are defined narrowly, the contract may not answer your real concern.
• You are buying out of fear. The statistics are real, but so is the fact that most children will never claim. Buy because the plan makes sense for your family, not because a story frightened you.

What should you ask before you apply?

Ask the insurer for the specimen contract and the definitions, ask how long coverage lasts and what options it carries, and ask yourself whether your own coverage is complete. Answer every health question on the application completely.

Questions for the representative and the insurer:

1. Which childhood conditions are covered, and how is each one defined?
2. What are the survival period and any waiting periods?
3. Until what age does the coverage last, and can it be converted?
4. Is there a guaranteed insurability option on the life contract, on which dates, and for how much?
5. What does the return of premium option cost, and on what conditions is it paid?
6. How are you paid for this contract, and by whom?

Questions for yourself:

1. Are both parents properly insured, and do we have an emergency fund?
2. Can we carry this premium in an ordinary year for as long as it runs?
3. Who will own the contract, and who should take it over later?

What this page will not tell you

It will not give you a premium or name an insurer, because the price depends on the child's age and health, the amount and the contract, and changes over time. It will not tell you that your child needs coverage, because that depends on your family's own protection, budget and priorities. And it will not predict your child's health: the statistics describe a population, not a person. For coverage that fits your family, compare real contracts and read their definitions.

Who this does not suit

Coverage on a child does not suit a family whose parents are not yet properly insured, a family without an emergency reserve, or a budget that could not carry the premium for many years. It does not suit anyone expecting a savings plan that promises a result, or anyone buying only because of fear. It can suit parents or grandparents who have their own protection in place, who want to secure a child's future insurability while the child is healthy, and who would want money on hand if a serious diagnosis ever came. If that describes you, start with the self-check on the Becoming a Client page.