A proposed draft of the DSM-5 (Diagnostic and Statistics Manual of Mental Disorders, fifth edition) was released for public comment on April 20. While the final version isn’t expected until 2013, the ramifications of diagnosing mental health disorders in children, including a whole new category of mental “risk” disorders, called “temper dysregulation with dysphoria”, or TDD, should be considered.

While I am not qualified to comment on the correctness of these kinds of diagnoses in children, I can discuss the issues when purchasing personal insurance for children who have been diagnosed with this type of mental illness.

What are the Risks?
Underwriting the insurability of a child is generally simple when your child is born healthy and happy. However, getting an insurance policy for your child can become a very difficult prospect once they have been diagnosed with a mental health issue. The insurance companies are unwilling to take on the risk of providing life insurance for a child who has mental health issues; they are concerned that children might become worse as they age and develop serious mental health issues into adulthood. Since all personal insurance policies will pay out their benefit for suicide after the policy has been in force for two years, the risk of children with mental health problems become suicidal adults are considered to be too great.

Added to these uncertainties are the unknown risks of a newly defined mental illness. Neither the insurance company nor the medical profession can forsee the outcome of new treatments. Will new drug treatments cause other physical side effects, such as weight gain or heart palpitations? Will children live normal happy lives after the treatment, or will symptoms persist or get worse? Answers to these questions are being studied as ongoing research, and it is just not a risk most insurance companies are willing to take.

You may ask – why buy personal insurance for children anyway? There are two main reasons why parents or grandparents buy insurance for their children.

The gift of insurability
With the onset of so many childhood diseases such as Juvenile Diabetes, Asthma and Cystic Fibrosis, the ability for these children to get personal life insurance even into adulthood can be very limited. Even if they qualify for an insurance policy later in life, it is likely they would pay an increased monthly cost (a rated policy) if they are still dealing with a childhood medical condition. The worst case scenario is they would never qualify for a personally owned life insurance policy which many Canadians take for granted. By insuring children early, a parent can lock in the child’s ability to get life insurance, because once it is in force, it can never be taken away from the person insured. The policy remains completely in the control of the policy owner (you, the parent) for the benefit of the person insured (your child or children).

Life Insurance as an investment vehicle
A life insurance policy purchased for a child can be a very powerful savings tool. It allows the parent to save money in a policy fund or cash surrender value far above the minimal premium required to insure the child’s life. The excess dollars invested can be put into a long-term, self-directed fund portfolio with a variety of interest or market based returns. The growth of money inside a life insurance policy is tax deferred, meaning there is no taxation on the interest earned on the money. This allows compound interest to become very powerful inside a life insurance policy over time. The funds can then be used by the child, later in life, for things like education, purchasing their first home, starting a business, etc. The underlying insurance policy can remain in force while the excess investment portion can be taken out.

The Solution
Parents or grandparents can purchase personal insurance for their children at a very young age. Most insurance companies will issue a policy 14 days after a child is born. As long as your child is born healthy, with no common birth defects, they are easily insured. Most childhood onset illnesses and diseases (both physical and mental) are not obvious at this age or have not yet occurred, making this is a great time to get your child a policy and avoiding any insurability issues that may arise in the future.

Feel free to contact us at Life Guard Insurance for further information about getting an insurance policy for your child.

Serving Calgary and Southern Alberta
(403) 209-3800 ext. 224

http://life-insurance-calgary.com