Key takeaway: Life insurance set up by foster parents is reasonably common and often involves small whole life or funeral cover policies. At $35 every three months ($140 annually), this is very inexpensive cover that may be worth keeping depending on what it provides, but you should review the policy to understand the actual cover amount, cash value if any, and whether it still meets your current needs as an adult.

While it may seem unusual for a foster parent to arrange life insurance for a child in their care, this practice does occur in Australia and typically reflects practical financial planning rather than anything concerning.

Why Foster Parents Set Up Life Insurance

Foster parents sometimes arrange small life insurance policies for children in their care for several reasons. Some take out funeral cover to ensure burial or cremation costs are covered in the worst-case scenario, sparing the child’s biological family or the state from unexpected expenses. Others purchase small whole life policies that build modest cash value over time, intending to provide the young person with a financial foundation when they age out of care.

According to ASIC MoneySmart, life insurance provides financial protection for dependants in the event of death (MoneySmart, 2024). While children typically have no dependants, these early policies can lock in low premiums based on young age and good health, and some build cash value that becomes accessible later.

The cost of $35 every three months suggests a small, basic policy, likely between $5,000 and $15,000 in cover, which is typical for funeral insurance or entry-level whole life cover.

What This Policy Likely Is

At this premium level, the policy is most likely one of two types. It could be funeral insurance (also called final expense cover), which pays a fixed amount specifically for burial, cremation, and funeral costs. These policies typically provide $5,000 to $10,000 in cover and have no cash value, though premiums remain level throughout life.

Alternatively, it may be a small whole life insurance policy. Whole life cover provides death cover for your entire life as long as premiums are paid, and importantly, builds cash value over time that you can borrow against or withdraw. Premiums on whole life policies taken out in childhood are extremely low because they are based on the insured person’s age and health at the time of purchase, as covered in foundational texts such as Principles of Finance.

Either type would explain the low quarterly premium. To know which you have, you need to review the actual Product Disclosure Statement (PDS) and your policy documents.

Read also: How to Choose Term Life Insurance in Australia: A Complete Guide

Is It Worth Keeping?

Whether to maintain this cover depends on what it actually provides. If the policy is whole life with cash value, it may be worth keeping. Policies taken out in childhood lock in extremely low premiums for life, and the cash value component grows tax-advantaged over decades. Cancelling now means losing that locked-in rate and any accumulated value, which you cannot replicate later.

If it is funeral insurance only, the decision depends on your current situation. $140 annually for $5,000 to $10,000 in guaranteed funeral cover is reasonable value. However, if you now have other life insurance through your employer or superannuation that includes death cover sufficient for final expenses, this policy may be redundant.

You should also check who the beneficiary is. If the policy still names your foster mother or her estate, you may want to update the beneficiary to someone you choose, such as a partner, parent, or sibling. Beneficiary details can usually be changed by contacting the insurer directly.

What to Do Next

Contact the insurance company (the name will be on your payment statements or bank records) and request a copy of your current PDS, policy schedule, and a statement showing the cover amount, any cash value, and the current beneficiary. Once you have this information, you can make an informed decision about whether the cover still serves your needs.

If you decide the policy no longer suits you, compare what you would pay for equivalent cover today before cancelling. Life insurance premiums increase significantly with age, so replacing a childhood policy may cost substantially more.

Consider speaking with a licensed insurance adviser who can review your full financial situation and help you understand whether this policy complements or duplicates other cover you may have through superannuation or employment.

General Advice Warning

This is general information only and does not take into account your objectives, financial situation, or needs. Before making any decision about your life insurance, read the Product Disclosure Statement (PDS) for your specific policy and consider obtaining personal advice from a licensed insurance adviser. Life insurance needs vary by individual circumstance, and professional guidance can help you determine the right level and type of cover for your situation.