January 12th, 2018 → 6:58 am @ MacDev Financial // No Comments
When it comes to the idea of purchasing a life insurance policy on a child, it can be emotionally hard to wrap your brain around. Life insurance is something we traditionally purchase to protect our loved ones. The death benefit helps replace the loss of your income, preserves your estate, and helps you leave a legacy behind for the next generation—namely your children and perhaps even their children. This is how most of us have been conditioned to think about life insurance coverage.
Purchasing life insurance requires coming to terms with our own mortality and that’s why life insurance for children is somewhat of a taboo subject—no parent wants to imagine receiving a death benefit on behalf of a child. As a result, you may be hesitant to the idea, but you should not be. There are very good reasons why your child should have insurance coverage.
Life insurance premiums tend to be more expensive the older we get. When children are young and healthy, premium rates are much more affordable and the underwriting process minimal. It works to your advantage to lock-in lower affordable rates for them starting at age 0. In fact, you can take a life insurance policy out on your child as early as two weeks old. Premium rates stay level for the duration the policy is in force.
What if you could give your child the gift of guaranteed insurance coverage for life? Purchasing a whole life insurance policy on your child at age 0 guarantees they have life insurance in place for the duration of their childhood and well into adulthood, despite any changes to their medical status or health. That’s permanent insurance protection for them that can eventually serve their own family’s well-being and as a tax-efficient transfer of assets to their heirs (your grandchildren). It’s a gift that will keep on giving.
If you delay getting insurance, you risk your child not possibly having coverage at all. For example, more kids are being diagnosed with Attention-Deficit Disorder (ADD), Attention-Deficit Hyperactivity Disorder (ADHD), and Autism Spectrum Disorders (ASD). According to Autism Speaks Canada, the prevalence of ASD has increased 100 percent in the last decade; one in 68 children are now diagnosed with ASD. Being diagnosed with one of these conditions in childhood can make it impossible or extremely difficult to get insurance coverage after a diagnosis is made. If they do get approved, premium payments will often be much higher than the going child rates paid.
Whole life insurance features a cash value that provides a stable, tax-sheltered savings option. Depending on the way your policy is structured, the cash value can grow substantially over time. Think of it as an asset that builds equity, like paying a mortgage on your home. You can leverage this equity to finance many of your child’s major life needs. Paying for their post-secondary education. Financing their first car. Providing a down payment on their first home. And the advantage to you, is the cash value continues to grow uninterrupted, as if you didn’t borrow from the policy all.
What if you can’t get insurance coverage for yourself? Perhaps you are not insurable or perhaps you can’t afford to pay adult premium rates? When you purchase a more affordable whole life insurance policy on your child, you have ownership of that policy until they are of legal age to take it over. If your child were to become sick or diagnosed with a critical illness such as cancer, you can use the cash value of their policy as a source of tax-free income replacement. And as hard as it is to think about, the loss of a child could also potentially threaten your financial security, triggering a decrease in income for you and your spouse, as you cope with the emotional and physical stress of that loss.
*What if you could double up your return on investment and create an additional income stream of $400 per month for your child when they reach the age of 26—especially at a time where their discretionary income is low? There is a type of whole life insurance designed specifically for children that provides you with this opportunitylike this example. In simple terms it could work like this: You pay $2,400 for 20 years and when your child turns 26 they can withdraw $400 from the policy over their lifetime (up to age 100). That’s a $48,000 investment on your part with a potential $360,000 return.
*This information is based on figures provided by Equitable Life of Canada’s in their Double Up for Life Brochure.
For more information on whole life policies for children and how they work, watch the video:
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Tags: CPA, Financial Advice, retirement advice, retirement information, Tax Advice, Tax Information, Tax Tips
