One way to build an asset for your child’s future

How do we give our children a head start in life?

by David Broudie
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The answer is we start planning early!

All parents want their children to be able to experience what life has to offer; enroll in the best education, purchase their first home, have the wedding of their dreams. More often than not, the average person is not a disciplined investor and even more often, the average person is not aware of the available insurance products to help their children financially throughout their lives!

If you are a parent, then you should be receiving the “child-care benefit”. This money can in fact help with daily expenses or paying bills, but even moreso, this money can be used to help with your child’s future. If you are already depositing money into your child’s RESP, you may be questioning if there are other alternatives.

 Have you ever considered purchasing a whole life policy for your child?

A whole life policy is a great way to leverage funds into a growing asset. The idea is to take the “child care benefits” that is paid out for your children and utilize it to purchase a 20-pay whole life policy (obviously, the funds do not have to solely come from the benefit).

Let’s use a hypothetical scenario to illustrate the key points of this policy and its benefits.

When your child is just 1 years old, let’s assume that you are comfortable with a $100/monthly ($1200 per year) investment. This amount can be adjusted to your liking, but we are going to stick with this example to illustrate the key points.

  •  The total cost over a 20-year period is then $24,000. You do not make any further payments after the $24,000 has been put into the policy.
  • The cash value after a 20-year period is a guaranteed $16,912, with a dividend value of $12,552 and therefore a total cash value of $29,464.

  • Fast forward 10 years to age 30, the guaranteed cash value is now $23,153 with a dividend value of $34,670 and a total cash value of $57,823

  • Now let’s say your child does not use this investment for school, but decides to hold onto it for retirement. At age 70, the total cash value has increased to $491,984 with a death benefit of $793,805. That is a nice chunk of money for your child’s retirement years!​

** Please note these numbers have been pulled directly from an insurance software and can vary depending on the insurance company and the age of your child.**

 Benefits worth mentioning:

  • This policy creates a tax sheltered asset for your kid while it is in the policy

    • While the money is in this policy, it is not taxed

    • When your child takes out the money, say, for school purposes, he/she will be a student presumably and therefore in a low tax bracket, paying minimal taxes (a tax calculator can help), leading to the next point below

  • Guaranteed growth minimal tax implications on withdrawal

  • Asset could be used to purchase new home, start their lives or even fund their retirement

  • No health issues or bad habits to affect the insurance rating

This concept is another way, aside from RESP’s, that parents can plan for their children’s success and can help give them a kick start to life!

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