Does your child need life insurance?

April 30, 2014 at 11:11 am Leave a comment

140424110439-child-life-insurance-620xaSome financial experts says:

“Life insurance should be purchased to cover financial responsibilities such as remaining debts and providing for dependants. Since this doesn’t apply to children, this is insurance you can do without,” 

On the other side of the debate you can buy a Universal Life insurance .

In addition to the benefits of establishing insurance at an early age and locking in rates,  it can also be a great way to save for your children’s future. Some companies give you the option of topping up the premiums each month with extra money that goes into an accumulating fund.


“Let’s take someone who’s maxing out their child’s RESP at $2,500 a year, and they have a good cash flow and they want to save more for their child,” he said. “A UL [universal life insurance policy] is a great option because you are not only establishing insurance, but you have a savings component that allows you to shelter capital tax-free inside the plan.”


For example, you might pay $100 a month for a $300,000 policy for your child, with $60 going into savings and $40 going toward the cost of the insurance, says . The accumulating funds can be invested in mutual funds or GICs, and they won’t be taxed until the child draws it out.


“Take, for example, a child who’s in university and has no income,” . You can shelter [the money] for 20 years and then they can take it out with no taxation.” Some companies have in their policies that you can draw out money tax-free upon diagnosis of a critical illness.


We also recommends “limited-pay” universal plans, where you pay the premiums for a set amount of time, say 10 or 15 years, and then the policy is paid for – permanently. Neither you nor your children will ever have to pay another dime, and they will have an insurance policy for the rest of their lives.


To illustrate,  The parents pay around $1,100 a year for 10 years, and this secures $250,000 of permanent lifetime coverage. Even if you assume that policy won’t be redeemed for 90 years or so (knock on wood), We look at it as a great rate of return.


“If I do an internal rate of return calculation for 90 years for that 10-year pay, the average yield is 4.04 per cent per year that’s non-taxable. That’s a fair rate of return,. “And you’ve had insurance for every day of your life for a quarter of a million dollars. You also had an available tax shelter that you could grow money in.”


when it comes to deciding whether or not to get life insurance for your children, the only consideration is cost. In other words, if you can afford it, you should do it.


“If you have the extra money to tuck away savings for your kids, it’s a great vehicle.”


Fore more info contact”

Insurance broker


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