My Grandfather
bought a life insurance policy for me when I was a baby. At the time, he didn’t
know what my future would hold. He didn’t know if I was going to be a success
in business, happy in life, or even a good guy or a bad guy. My grandfather
simply wanted to do something that would help me in any way he knew how.
People don’t buy
life insurance on children in case they die; people buy life insurance on children,
in case they live. Of course, should the unthinkable happen; a death benefit
would help offset the associated costs so parents are not left with the loss of
a child, and a debt.
Parents look to their
child’s future and once the basics are taken care of, they set money aside for
all sorts of things. Short, medium and long term savings become a part of most
people’s lives. Saving for a rainy day and saving for an education are far
apart in the scope of the mechanics; however, every type of savings plan is
important- including starting an insurance plan.
When it comes to
children, life insurance offers some very unique features not found in some other
financial products, for example:
–Tax sheltered growth,
–Increasing death benefits,
–Guaranteed options for future purchases,
–Non-taxable transfer of ownership,
–A Secure savings program
–Waiver of premiums if a parent dies,
–Premiums based on child’s age at issue,
–And access to liquid cash values,
·
Creditor
Protection
As in any Whole Life policy, a policy for a child
provides growing cash value where money accumulates securely, free from
creditors. In addition, because of the Revenue Canada rules on life insurance,
the growth is completely tax free while kept inside the policy. The eventual
death benefit is also tax free.
Death benefits do
not need to remain stagnant. With the use of dividends in a “participating
policy” the future death benefit continues to climb through the use of “Paid Up Additions” For example for a
newborn baby girl at the amount of $25,000 the whole life policy can almost triple
to $74,000 by age 20 with the current dividend scales of one carrier. Note that
dividend scales are not guaranteed and values are expected to change with time.
A policy which
contains a guaranteed insurance option
provides a written guarantee that the child can increase the coverage later in
life when the need arises according to the terms of the policy. Current
policies for children might carry an option to increase coverage up to
$600,000. These options can be exercised
without medical examination. This is a pure gift for a child who may have become
uninsurable.
The parents have
the right based on Revenue Canada’s tax rules, to transfer a policy to the child
whenever the parents decide the child should own the policy. In addition to the
values remaining protected from creditors, a policy can be transferred to the
child free from any tax consequence.
The cash value in
a policy continues to grow. Access to this secure savings is available to the
policy owner. People often access the money and often repay it to the policy.
Using the money and repaying it does not affect the long term growth of the
policy.
If the owner of
the policy (usually the mother or the father) dies or becomes totally disabled,
the insurance company can take over the premium payments if a waiver of premium is purchased. This
makes the policy self completing.
My grandfather is
long since gone and I miss him dearly; but I will always remember him, for many
things. Not the least of which are the financial lessons he taught me which are
found in that little life insurance policy which bears his name.
If you are in Nova Scotia and would like some insurance advice, please contact Corry Collins:
corry@maritimewealth.com
902-444-7000
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