Life Insurance for Kids: Is It Worth It?

A parent calls their insurance broker and asks about life insurance for their eight-year-old. The broker pauses. Life insurance replaces lost income when someone dies. Children don't earn income. So why does this product exist, and does anyone in Australia need it?

The short answer: most Australian families get no financial benefit from insuring a child's life. The money goes further when applied to the parents' own life insurance, income protection, or savings. But edge cases exist where child cover serves a purpose.

Child life insurance pays a lump sum if the insured child dies. Some policies also include a trauma or critical illness component that pays a lump sum if the child is diagnosed with a specified serious illness: cancer, organ transplant, major head trauma, or similar conditions listed in the policy.

In Australia, child life cover is not sold as a standalone product by most insurers. It appears as a rider or add-on to a parent's existing life insurance policy. AIA, TAL, MLC, and Zurich offer child cover options attached to their adult life insurance products. The child rider covers all children in the family under one addition.

Cover amounts for children are lower than adult policies. Typical sums insured range from $10,000 to $200,000 for death cover and $50,000 to $200,000 for trauma cover. The child must be between 2 and 17 to be added. Cover ends when the child turns 21 or 25, depending on the insurer.

Child cover riders add $5 to $30 per month to a parent's existing policy, depending on the cover amount and whether trauma is included. The cost does not increase with the child's age because the risk of a child dying is statistically low.

Over 15 years (age 3 to 18), a $20/month rider costs $3,600 in total premiums. If the child doesn't claim (which is the overwhelmingly likely outcome), that money is gone. The same $20/month invested in an index fund at 7% annual return would grow to around $5,200 over the same period. For a breakdown of adult life insurance pricing, see our guide on life insurance costs in Australia.

Life insurance exists to replace economic loss. When a working parent dies, the family loses their income. When a child dies, there is no income to replace. The financial impact of a child's death involves funeral costs ($4,000 to $15,000 in Australia) and time off work for grieving parents. These costs, while significant, are far lower than the income loss from a parent's death.

Child mortality in Australia is low. The Australian Institute of Health and Welfare reports that the death rate for children aged 1 to 14 is approximately 10 per 100,000. For context, the adult mortality rate for ages 35 to 44 is around 80 per 100,000. Insurers price child cover cheaply because claims are rare.

Funeral costs can be covered through savings, a funeral bond, or the parent's emergency fund. Most Australian families with adequate parent life insurance, income protection, and an emergency fund have no gap that child life insurance fills.

The money spent on child life insurance premiums creates more value when redirected. An extra $20/month on the parent's income protection policy could add critical illness cover or increase the benefit period from two years to age 65. That change protects the family from a far more probable financial threat.

Child trauma cover has a stronger case than child death cover. If your child is diagnosed with cancer, leukaemia, or suffers a major accident, you need money for treatment costs not covered by Medicare, travel to specialist hospitals, accommodation during treatment, and lost income while caring for your child. A trauma payout of $100,000 to $200,000 funds 12 to 24 months of reduced or zero work.

Families without adequate savings are more exposed. If both parents work and have limited emergency funds, a child's serious illness forces a financial crisis on top of a medical one. Trauma cover prevents the family from taking on debt during treatment.

Some parents buy child life insurance to guarantee future insurability. A child who develops a health condition as a teenager may struggle to obtain life insurance as an adult. Some child cover policies include a conversion option that allows the child to convert to an adult policy at age 21 without medical underwriting. This locks in insurability regardless of health changes. Our guide on life insurance underwriting explains how health history affects applications and premiums.

Families with a history of hereditary conditions (Type 1 diabetes, certain cancers, genetic heart conditions) may value the guaranteed insurability feature. If your child inherits a condition that makes adult insurance expensive or unavailable, the conversion option bypasses that barrier.

Increase the parents' life insurance before insuring the children. A family with two working parents should carry enough life cover to replace the deceased parent's income for 10 to 15 years, pay off the mortgage, and fund children's education. The Insurance Council of Australia estimates that the average Australian is underinsured by $250,000.

Income protection insurance pays up to 75% of the parent's income if illness or injury prevents them from working. This matters more than child cover because it addresses the most common financial threat to a family: a parent who can't earn. A parent caring for a seriously ill child can claim income protection if the caring role prevents them from attending work.

Address items one through four before considering items five and six. Most families who complete the first four priorities find they have enough financial resilience to handle a child's illness without a separate policy.

Ask three questions. First: do both parents carry enough life insurance and income protection to keep the family financially stable if either parent dies or becomes disabled? If not, redirect the money there. Second: do you have three to six months of expenses in an emergency fund? If not, build that first. Third: could you absorb $10,000 to $50,000 in costs related to a child's serious illness without going into debt? If yes, you don't need child cover.

If you answer no to the third question and you've addressed the first two, child trauma cover fills a real gap. Skip the death component (funeral costs are manageable) and focus the cover on trauma or critical illness. A $100,000 to $200,000 trauma rider costs $10 to $20 per month and pays out when you need it most.

Speak with a financial adviser who holds an Australian Financial Services Licence (AFSL) and specialises in risk insurance. They can model your family's specific situation, identify gaps in your current cover, and recommend the right product. Under the Life Insurance Framework reforms, advisers receive level commissions that don't incentivise overselling, so the advice should align with your needs.

Check whether your superannuation fund includes default life insurance. Many industry funds provide $200,000 to $500,000 in death cover as a default benefit. This might already meet your parent life insurance needs, reducing the premium budget you need to allocate and freeing up funds for other priorities. Parents should also consider whether life insurance premiums are tax deductible when held inside super versus outside.

A funeral bond is an alternative for families who want to cover a child's funeral costs without ongoing premiums. You deposit a lump sum (typically $5,000 to $15,000) into a capital-guaranteed bond that grows over time. The funds release upon death to cover funeral expenses. Several Australian providers offer funeral bonds, including InvoCare. The bond sits outside your estate and doesn't affect Centrelink asset tests.

Education savings plans also build long-term value. An investment bond in the child's name grows tax-effectively over 10 years. If the child stays healthy (the most likely outcome), the money funds their education, first car, or home deposit. If a serious illness occurs, you can withdraw funds to cover costs. The money works for you either way, unlike insurance premiums that vanish if no claim is made. Another option is opening a super account for your child. Our guide on superannuation for under 18s covers how to set this up and the long-term benefits of early contributions.

For families who decide child trauma cover is worth the cost, compare at least three quotes through a financial adviser. The adviser can access policies from AIA, TAL, MLC, Zurich, and OnePath, and identify which product has the broadest trauma definitions, the fewest exclusions, and the best conversion options at the child's 21st birthday.