It’s estimated that it costs well over $200,000 to raise a child from birth to age 18, not counting post-secondary education. (MoneySense.ca 2015) So when a new child joins a family, parents and grand-parents tend to think about starting an education fund like a Registered Education Savings Plan. While this is a very practical way to help the child get a head-start in life, it’s a tactic that’s limited to their education years. However, there are other long-term savings options that can benefit children.
One option is a life insurance policy for the child that is purchased by the parents, grand-parents or another friend or family member. The child will then be protected for his entire life and can take advantage of an added savings component that is tax exempt.
Isn’t a life insurance policy for a child unusual? Perhaps, but it’s the built-in savings component, not necessarily the death benefit that makes this an attractive solution.
The insurance policy is purchased by the parents, grand-parent or another friend or family member on behalf of the child. The insurance premium is determined by the child’s age, health and other details. This amount remains level over a set number of years and never increases. Part of the premiums accumulate in a separate, tax-sheltered account and over time a portion of the cash value can be used to pay the policy premiums.
When the child reaches the age of majority, the policy ownership can be transferred to them and continues to protect them for life. At this point, all the premiums may have been paid. What’s great about this insurance is that it provides the child with a head-start on life. For example, the policy can be used as collateral when applying for a loan. Also, the child may have the option of purchasing more insurance without a medical review. This is called a Guaranteed Insurability Benefit.
And many policies have a cash value so as the child grows so does the cash value. It’s accessible at any time and is subject to the available amount. The child can use it towards post-secondary education, travel, as an emergency fund or as a down payment on a home.
Speak to your life insurance representative or financial services advisor who can offer you tips that best suit your situation.
Director, Sales and Business Development
Desjardins Financial Security Independent Network
This article is for general information purposes only and should not be construed as insurance, investment or tax advice. The information contained herein is based on sources and materials believed to be reliable, but are not guaranteed. Please refer to the policy for more detailed information.