Insurance basics for kids

Insurance is an important financial concept to introduce to your kids long before they’ll need to have it. Insurance can be a complicated topic if you get into the specifics of policies, but the core concept is simple.

Explaining why you need insurance

You may be hesitant to explain why you need insurance. It’s understandable you want to protect your child from the unpleasant parts of life, but sharing your knowledge can equip them for the future.

Basically, insurance protects you from financial risks. It helps cover costs if something unexpected happens to you or your family, your car or your belongings. Reassure your child you’re planning just in case. They don’t need to worry that something bad will definitely happen.

What’s the simple explanation? You pay for an insurance policy. Your payment is pooled with other people’s money. If something happens, like your car gets damaged, you make a claim. This means you ask the insurance company for money pay for fixing the damage. The insurance company makes money because not everyone who pays for a policy will need money back.

As your child gets older and more comfortable with financial concepts, you can become more detailed in your explanations.

Types of insurance

Here are some common types of insurance you can use as examples for your child.

Car insurance

Talk to your child about car insurance before they get their driver’s license as part of a broader conversation about owning a car. Explain to them how car insurance, depending on your policy, could help you pay for repairs if the car is damaged. It can also help cover someone else’s repairs if you cause an accident. Talk to them about how the age of the driver and their driving experience can affect how much you pay for your insurance. Show your child your policy and explain what it covers and why you chose the policy.

If your child is ready to have their own car insurance, help them research their options. As well, encourage them to consider how any policy payments will affect their overall budget.

Home insurance

Home insurance may protect your home and its contents from damage or from theft or loss. Home insurance covers both the house and the things within it. Walk your child through your policy and talk about what it covers and what it doesn’t.

If your child is planning to rent an apartment, talk to them about why they should consider tenant’s insurance. Helping your child research tenant’s insurance and decide how much coverage they need will help prepare them for other insurance purchases later.

Life insurance

Once you’ve discussed other types of insurance, your child should be ready to learn about life insurance. Explain you have life insurance to make sure your family can cover expenses when you die. If you’ve benefited from life insurance, share your experience with your child. You can also show your child your life insurance policy and discuss what it covers and how much you pay in premiums. If you have life insurance on your child, let them know and discuss why.

Next steps

Insurance is a complex topic, but I can help you prepare to talk to your kids about the basics. I’m happy to set up time to meet with you and your child to answer their questions.

This information is general in nature, and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.

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