The main point is to fill the room with fragrance, if you are offering incense devotionally. Therefore, I recommend you use an aromatherapy nebulizer.
You can then procure pure sandalwood essential oil, or agarwood, etc., add a couple drops to your nebulizer, and enjoy the benefits of the aroma and none of the downsides. You could even experiment with creating blends of essential oils for your needs.
A nebulizer works by creating water vapor via ultrasound.
Keep in mind that burning wood for fires, etc, also produce the same compounds. As well as cars, city traffic, etc.
As long as your house is well ventilated, you use vetted pure incenses from a reliable sources that uses no accelerants, etc., then I think then there is no additional risk to your children that is not already present from our toxic industrial environment as a whole.