September 12th, 2011 | Author: Mitch Reynolds

A Financial Plan for Children Can Have Many Moving Parts

Get advice to design a financial plan for children that makes sense for your family

Financial plan for children As parents we all want the very best for our children. For some of us, we have the finances available to provide our children the head start in life that we want. Even if you are struggling financially there are free government programs and low cost solutions to help you save for your children’s future. This article will give a summary of the four parts of designing a financial plan for your children:

Life Insurance is foundational to your children’s financial plan

When I talk to parents about getting a life insurance plan on their children, the first thing I run into is the horrible idea of “profiting” from their child’s death. If that was the true purpose of the life insurance on children, then yes this would be a horrible product that should be banned. But buying life insurance for your children has nothing to do with getting the death benefit as a “profit” if they were to die. The real plan with life insurance on children is to help them get a life-long insurance plan going for whatever their future might bring and to create a tax efficient savings plan within the life insurance policy.

Giving your child the gift of insurability when you buy a life insurance policy for them means they will always have that insurance protection, no matter what happens in the future. Unfortunately, many childhood illnesses and diseases might make your child uninsurable in the future. Things like juvenile diabetes or muscular dystrophy can leave your child without the ability to buy their own life insurance policy when they are an adult and need coverage. Having life insurance in place is truly a gift.

Also, you can save money in a life insurance policy that will have tax sheltered growth over time. Money inside a life insurance policy does not need to be used for education only. It can be used for many things, like paying for a wedding, putting a down payment on a house, starting a business, and more. Parents can also transfer ownership of a life insurance policy and all accumulated cash values to their children without any tax consequences. This make life insurance one of the few inter-generational wealth transfer plans in Canada.

Critical illness insurance protects your family and your children from the unexpected

Another foundational part of a complete financial plan is to protect against a critical illness that might strike you down. What would happen if something like cancer affected one of your children? You might not be sick, but the financial consequences to your family could be the same. Time off work would mean loss of income. Extra medical costs not covered by provincial healthcare would mean dipping into savings or taking out more debt.

Critical illness insurance for your children could mean that your family continues forward with its financial plans intact, and gives you access to alternative, fee for service healthcare. The good news is that the cost of a critical illness plan for children is very low compared to adults. These prices can be locked in for life and if nothing happens during childhood, the policy can be transferred to your now adult child as part of his/her ongoing financial plan. It generally makes good financial sense because the cost is low to insure but the financial consequences are high if the unexpected was to happen.

A Registered Education Savings Plan (RESP) is the best way to save for post-secondary education

When most parents think about a financial plan for children, they firstly think about an education savings plan. This is the BIG planning idea in Canada today for children, and is supported by the Canadian government. We all know that if our children receive a post-secondary education, like university, college or a trade certificate, their ability to get a job and earn higher incomes goes up dramatically. None of us wants the cost of education to be a barrier to our children, but finances are always a challenge.

If you started saving even a small amount for your child when they are young, the growth of those dollars over time would amount to thousands in the bank when your child goes to post-secondary education. The government of Canada is giving away a minimum of 20% top-up on every dollar you contribute into an RESP, to a maximum of $7,200 per child. If you are a lower income family, the grant money is greater, up to 40%, and there are other programs that give away free cash for your child’s education costs.

If you are able to save a lot, a little, or nothing at all, this article on RESP savings is worth a read. Every child in Canada can have an education savings plan!

Add a Child Term Rider to parent’s life insurance – low cost way to get life insurance coverage for children

If you can’t afford to buy each of your children a personal life insurance policy with tax sheltered savings, like the tax deferred insured savings plan idea above, you can always insure your children with a low cost child term rider added to your life insurance policy. A child term rider is a low cost way of adding up to $30,000 of life insurance protection for ALL your kids for one price. It will also allow your children to take over the life insurance as an adult by getting a separate, personally owned life insurance policy for between $150,000 and $250,000 of coverage, without medical evidence.

A child term rider gives your family financial protection today from the devastating financial impact of losing a child (the emotional impact is traumatic, and should not be compounded with financial worries). It also gives your children the gift of insurability when they reach adulthood. Even though there is no tax sheltered savings in this type of plan, it is a great risk management tool for today and for the future financial plan for children.

Life Guard Insurance can help you set up a financial plan for children

At Life Guard Insurance we have professional brokers across Canada who can help you set up a comprehensive financial plan for children. Feel free to contact Life Guard Insurance for more information on these financial planning ideas or to be put in contact with a broker for your child’s financial plans.

The article was written by Mitch Reynolds+. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about building a financial plan for children would also be very much appreciated.