As U7 and U8 kids tend to miss out on illegal moves very often, we should still consider 2 illegal moves as a loss, but the claimant should notify the arbiter of every llegal move played to avoid any future misunderstanding.
We could apply the same rule for up to U10 age group. However, considering that U11 and above will play by clocks, and these children are considerably experienced, then the normal FIDE rapid rules should apply - an illegal move loses instantly. I don't think we should give 2 illegal moves, as then the arbiter should add 2 extra minutes to the claimant's clock. I think we should train our children to get used to the strictness of the international laws of chess. This will also train their attention.