Generally speaking, for most people, Insurance has a specific objective. It’s there to do something for you and your family that you’re not able to do anymore due to illness, injury or death – that is, to provide you and your family with an income. However, there are certain other situations where using Insurance as a tool for future financial planning becomes a great strategy, whether it be for estate planning, tax planning or even accumulation of assets. One strategy that is often used for future financial planning by both parents and grandparents alike is that of ‘Insurance for Children’. Just as using an RESP is a gift providing your children with a head start on the cost of Education in the future, using Insurance as a gift for your children is a great tool that can be used to invest for their future as well.
Why Use Life Insurance for Children?
Although people will often associate the discussion of Life Insurance to that of ‘death’, it does have other uses and can play a pivotal role in the overall financial health of you and your family. Providing your children with the gift of Life Insurance can help achieve many different objectives, which will strengthen their overall financial health in the future. Below are several different reasons as to why many parents and grandparents decide to gift their child/grandchild with Insurance.
- Low Rates
- At young ages, the cost of Insurance is much less than it would be for adults. For this reason, by gifting Insurance to the child, you will be helping to reduce future expenses and take advantage of the much lower rates today.
- Structured Payoff
- These plans can be structured to be paid off in a certain number of years, such as 15 or 20 years. So, for example, if a plan was started for a 4 year old child, and it was structured as a ’20 pay’, that means by the time the child reaches 24 years of age, the plan would be fully paid off, and no future payments would be needed.
- Lock in Insurability
- We know that today there are more and more illnesses than ever before, and they can hit someone at any age. By providing the gift of Insurance to children when they’re young, you lock in their insurability, so that even if they were to get sick or become un-insurable in the future, they would still be protected. Many companies also have a feature where the child can purchase additional Insurance in the future without evidence of insurability.
- Gifting
- Many parents or grandparents like the idea of providing a financial gift to their children, rather than things like toys or electronics, as those often go to waste. This type of gift can last the entire lifetime of the child without ever going to waste, while actually helping them in their financial future.
- Tax free asset growth
- Using a Permanent Insurance policy for your child will allow the cash values within the policy to grow tax sheltered, which can accumulate to a substantial amount over their lifetime. This can ensure that their future obligations are taken care of and the need for them to purchase Life Insurance when they’re older is minimized, or altogether negated. Not only will they grow a lot of money tax sheltered, they will save thousands of dollars in Insurance costs in the future.
- Pass on estate
- For those who have been able to max out their other investment vehicles such as RRSPs and TFSAs and are looking for a way to pass on their estate tax free, using this strategy may be a great way to do that. Since the cash value within these plans grows tax-free, they’re able to ‘invest’ in their child without worrying about future taxes to themselves.
- Increase the value of the child’s estate
- By purchasing a Permanent Insurance policy, you can ensure that the value of the child’s estate can immediately increase, and will continue to increase more over their lifetime. This will allow for a much higher estate value in the future when the time comes, providing their family and heirs with financial stability.
- Funds can be accessed later in life
- Since a Permanent Insurance policy builds cash value within the policy, these funds can be accessed later on in life if needed. Whether it be for education expenses, help with the purchase of a home, or other life needs, the funds within the policy can be used to supplement their income or needs in the future.
- Not giving the money directly to the children
- Many parents and grandparents are more than happy to give gifts or financial support for their children, but may not be too comfortable in providing the cash directly to them. By gifting them with an Insurance policy, it will ensure that the funds are not given directly to them, but instead will provide for their future financial stability.
- Can retain ownership
- Parents or grandparents have the ability to retain ownership of the policy, even after the child turns 18 years old. They have the choice of holding ownership of the policy for as long as they want, or can transfer the ownership to the child after they turn 18 years of age. Many parents/grandparents prefer to keep the ownership of the policy until the child becomes much older, as they don’t want to just give a policy with potentially tens of thousands of dollars in cash value to the child, until they feel they are responsible enough to handle it.
Is This Something New?
Getting Insurance for children is definitely not a new thing. Many of us remember the commercials from when we were younger of the Gerber Life Insurance Plans, which were plans for young children and were designed to create cash value within the plans. This is the same concept, except the difference now is there are many more options of companies that are offering this type of product. Those children who got those types of plans decades ago would have seen a substantial increase in the amount of cash value within the plans – in some cases hundreds of thousands of dollars – as well as the increase in death benefit. Many of them were in a situation where they never needed to apply for or pay for insurance ever again. This is the type of gift that will help establish a solid financial future for your children!
These types of plans are often used to maintain or increase inter-generational wealth. Since these types of policies increase in value over time and pay out tax free, the estate value is immediately increased. This also means the next generation in the family has a wealth infusion right away and is able to continue increasing their wealth over the years. This is actually one of the secrets that the wealthy use to create, sustain, and increase wealth over generations.
Providing for our children’s future is what every parent wants to do, and being able to do that effectively provides immense gratification. By dealing with a knowledge and Elite level Financial Advisor, you can be sure that you will have all the options and information on how to provide for your child’s financial future, so as to give them a head start in life.
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