Insurance Planning for the Next Generation: What's possible?
Juvenile Life Insurance
The purchase of life insurance for children or grandchildren is not a concept that is often considered or discussed. Several income splitting opportunities have been shut down, but there are still a few things that can be done. Juvenile life insurance can benefit your overall financial security planning strategy for the following reasons:
Transfer of Wealth:
The ownership of this asset is transferred to the child or to their parents without tax implications to the owner, providing excellent tax planning strategy.
Tax Deferral & General Taxation
When the owner gives the child control of the policy, any withdrawals are then made by the child, and are taxed at their marginal tax rate, usually less than the owner’s personal tax rate.
The preferential taxation of permanent life insurance offers tax-deferred accumulation of the cash values within the policy, as with an RRSP or RESP.
Control:
Contrary to most other savings vehicles, juvenile life insurance allows the owner to maintain complete control of the policy and its cash value until they wish to give that control to the child or child’s parent.
Creditor Protection:
A preferred beneficiary designation (immediate family members) protects the cash values from potential creditors of the policy owner.
Providing a Lasting Legacy:
The policy will last for the entire life of the child and the owner will have provided liquidity for opportunities and emergencies, capital for their first home or business, and a life insurance benefit for their spouse and children. This has provided them with a lasting legacy.
Insurability:
You will have provided a base of life insurance coverage for the child’s future obligations, which they may well never have to pay for in their lifetime. As well, insurance costs are much less expensive for children at a young age.
Future Insurability:
A Guaranteed Insurability Benefit can give the child the ability to purchase additional insurance in the future, regardless of the child’s health, hobbies or occupation. This provides the child the opportunity to provide for their own children in the future.
Limited Deposit Requirement:
Generally, permanent life insurance can be structured so that premium deposits are not required for life, but for a shorter period. This can range from 8-12 years, up to lifetime, depending on the needs of the individual and the desired length of commitment on the part of the depositor and owner.
Juvenile Critical Illness Insurance
A reality that no parent wants to think about is the possibility that their child may someday have to battle a critical illness. While you hope that this will never be the case, it is imperative to be prepared for this situation. Critical Illness insurance relieves parents of the additional financial stress that comes with caring for a sick child. A few examples of these stressors are:
Paying for medication, treatments, and travel
Time off work
Childcare support for siblings during hospital visits and doctors’ appointments
Counselling fees
Hospital parking fees
Juvenile critical Illness insurance is a tax free, lump sum benefit to the parent. This insurance can cover up to 26 different illnesses such as life-threatening cancer, acquired brain injury, and kidney failure, to name a few. If by age 25 the policy has not been claimed on, the return of premium feature enables you to receive your premiums back. Alternatively, the coverage may be converted to an adult contract with no medical underwriting.
Critical Illness insurance will keep your family on track financially if the unexpected happens and allow you to focus on what is most important, the health and well-being of your loved ones.
If you would like to learn more about juvenile insurance strategies and how they can benefit your family, please contact our team at Family Wealth Coach.
