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Life Insurance

Life Insurance for a New Baby? Why It Makes Sense.

By Rebecca Lake • Published March 2, 2020 • 4 Min Read

Buying life insurance for your baby may sound a bit morbid and might not be something you want to think about as a new parent.

Did you know that purchasing a cash value life insurance policy is a way you could pay for your child’s education, and other financial goals, you might not have considered?

It’s never too soon to start planning for your child’s post-secondary education. The average annual cost of university for Canadian students living off-campus was $19,498.75 in 2017, and that number is expected to steadily increase every year. Luckily, you have time on your side!

Why Cash Value Life Insurance?

Cash value life insurance — also known as permanent life insurance — can act as an investment vehicle for the life insured, in this case your newborn, for life.

How does it do that? Once your child reaches adulthood, you can transfer the ownership of the policy to them. Then, they can borrow against the policy or withdraw the cash value that’s been accumulating since you bought it.

Life insurance pays benefits to one or more beneficiaries if the person insured passes away, but permanent coverage yields another benefit that can be used to secure your child’s financial future: cash value.

With universal life insurance, for example, only part of your premium (or what you pay for coverage) goes toward purchasing your insurance. The rest is invested to earn interest. And you can choose more conservative or more aggressive investment options based on how much risk you’re comfortable with taking on.

Insurance Can Help Secure Your Baby’s Future Plans

Your newborn may be just a baby, but eventually, they will grow up. And accumulating the cash value of a universal life insurance policy now can be a big help later on with things like:

  • Paying for their post-secondary education
  • Helping them buy their first car
  • Putting together a down payment for their first home
  • Funding a gap year before college or university so they can travel the world
  • Helping them start a business

And if they don’t end up using the cash value in their policy for any of those goals, they can also use it later in life to:

  • Supplement their retirement income
  • Help pay for their health care expenses that Medicare doesn’t cover
  • Cover their policy premiums
  • Help their own children with their financial goals

The Sooner You invest in Your Child’s Future, the Better

You can buy a permanent life insurance policy for your children at any time. But there are two significant advantages to getting coverage when your child is a newborn:

  • Coverage may be less expensive because they are so young
  • Your child has a longer window to accumulate the cash value

Permanent life insurance can be more expensive than term life insurance, which only covers the beneficiary for a set term, but term life doesn’t offer the cash value.

Universal life insurance combines the lower premium costs of term life insurance with the cash value and flexibility. That’s why there may be no better time to get a low rate on universal coverage than when your baby’s just made their debut to the world.

From a saving perspective, time is the most powerful tool your child has. The sooner your child is covered by a permanent life insurance policy, the longer the cash value component has to grow until they’re ready to use it.

So, Is Life Insurance Right for Your Baby?

There are several things to think about if you’re considering buying life insurance for your newborn. Start by asking yourself these questions:

  • What financial goals could life insurance help my child with?
  • How much coverage should I buy for my newborn, and what’s the cost?
  • What are the policy’s investment options?
  • How does life insurance fit into our family’s larger financial plan? For example, if you’re saving for college or university in an RESP, or investing money for your loved ones, would the policy still be as useful?

If you think universal life insurance for your newborn may be a good fit financially, talk to an advisor.


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*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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