When your children are young they require constant care and attention. As they grow into strong, independent adults, you will know all the sacrifices were worth it. Giving your child a good start in life paves the way to a future of successes.
- Have you considered how you can help shape your child’s financial future?
- Did you know life insurance plays an important role in his/her future financial security?
Tax-advantaged growth of policy values
Besides providing surviving family members with a death benefit, some types of life insurance can accumulate cash value on a tax-advantaged basis. If the accumulation stays within prescribed limits, the cash value that builds in the policy is only subject to income tax when it’s withdrawn. Consider the financial benefits to your children’s start into adulthood if they could access their accumulated cash value to help pay for their education, put a down payment on their first car or home or travel the world.
Protecting your child’s insurability
Life insurance is best purchased when your child is young and healthy. Some policies guarantee insurability, allowing your child to purchase more life insurance as an adult, regardless of disability, illness, occupation, residency or foreign travel.
Without proper life insurance planning, a child who develops serious health problems or is diagnosed with a major illness may not be insurable as an adult. In addition, foreign travel to world hot spots may significantly increase your child’s life insurance premiums or even lead to being denied coverage as an adult. If this occurs and your child is not adequately insured, his/her loved ones may be faced with a large financial burden in the event of premature death.
Policy ownership can be transferred to the life insured with no tax implications to either party. This makes it possible to transfer assets from one generation to the next, avoiding taxation along the way.
Some people believe life insurance for children is unnecessary, because they do not contribute to a family’s income. However, when you factor in the benefits life insurance can provide through tax-advantaged growth, protecting your child’s insurability and paying for unforeseen costs, they outweigh the notion that life insurance is only for individuals with an income.
Covering unforeseen expenses
The tragic loss of a child is unpleasant to think about and even worse to endure. The last thing you would want is to worry about money. Life insurance not only covers immediate expenses, such as funeral costs, but can also be used for grief counselling, taking time off work, moving costs or whatever is needed in your personal situation. While children should never die before their parents, are you financially prepared if the worst was to happen?
Unlike traditional investments, a permanent life insurance policy is exempt from annual income taxes on the growth of policy values, provided certain conditions are met. As a result, with permanent life insurance more of your cash value goes towards your child’s future instead of income taxes.
This article is for information purposes only and should not be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but law and interpretations may change, therefore errors and omissions are possible. All comments related to taxation are general in nature and are based on current Canadian tax legislation for Canadian residents, which is subject to change. For implications as they relate to individual circumstances, consult with legal or tax professionals. Information is provided by London Life Insurance Company and is current as of August 2007.
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