Securing a Child's Financial Future with Juvenile Life Insurance
By: Chad Viminitz, CFP
Today, most parents are aware of Registered Education Savings Plans (RESPs) in large part due to the heavy promotion by banks, government agencies, financial institutions and planners as the best way to save for a child's education. While RESPs play an important role, they are not the sole tool to build a child's financial future, falling short in several capacities. Restrictions on annual contribution limits, limited alternatives for a child who does not pursue post-secondary education, limitations on those institutions that qualify under current RESP guidelines and a fixed plan termination date are a few deficiencies of the RESP. Juvenile life insurance complement RESPs nicely, bridging the gap where the RESP has the potential to fail. Through enhanced flexibility, greater potential for financial savings and the security of future insurability, juvenile life insurance should be given strong consideration when planning for a child's education.
A juvenile life insurance policy has potential for greater financial savings. RESPs impose an annual contribution limit of $4,000 and a lifetime limit of $42,000. No such limits are imposed on juvenile life insurance. This provides parents and extended family with the opportunity for enhanced educational savings, particularly in an era of rapidly rising tuition. As with the RESP, investment growth within a life insurance policy grows tax-sheltered.
Current RESP guidelines impose restrictions on the educational programs and institutions that qualify for withdrawal of RESP savings. This poses problems for young adults wishing to pursue an education beyond these confines. No such restrictions are placed on life insurance savings, allowing for both "formal" and "informal" education. Its benefit extends beyond the pursuit of education to include funding of important life events such as marriage, home ownership or travel.
Author Denis Waitley says of life, "you can expect the best, plan for the worse but expect to be surprised." This is certainly true for education, which often takes the form of lifelong learning. It is increasingly common for students to return for post-secondary education, postgraduate or doctoral degrees after years in the work force. Young adults often wish to pursue travel or employment to enrich life experience, delaying their formal education. The RESP imposes a 25 year limit of use from the time of purchase. These time constraints do not apply to juvenile life insurance, providing flexibility and income options for those who endeavour an alternative timeline or educational path.
Steven Covey, author of "Seven Habits of Highly Effective People," highlights the importance of securing priorities when building any type of plan. With financial planning, life insurance forms the foundation upon which the financial planning pyramid is built. The significance of securing a child's future insurability while in a state of good health cannot be overemphasized. Statistics Canada reported that adolescence overweight rates have more than doubled, and obesity rates more than tripled since 1978. The future health of a child cannot be assumed. RESPs, "in-trust" accounts and regular savings accounts will be available regardless of a child's health status; the same cannot be presumed for life insurance. A juvenile life policy assures the protection of a child's future insurability.
Parents often desire direct influence and control over a child's savings until responsibility for his/her finances is demonstrated. Life insurance is a perfect vehicle to meet this need as one or both parents can be the owner of the plan, transferring ownership when they feel that the child is adequately responsible. With "in-trust" accounts, the child has full right to the funds once the age of majority is reached. In addition, the life insurance plan can be transferred tax-free from parent to child, avoiding potential tax complications of "in-trust" accounts.
Juvenile life insurance allows parents the opportunity to influence their child's financial life during the educational years and beyond. This can be achieved through both participating (whole life) and Universal life, which can be tailored to a family's individual needs. A Certified Financial Planner professional is well equipped to guide families through the maze of available savings options for children. It has been said that "there are two lasting gifts we can give our children: One is roots, the other is wings." In combination with an RESP, juvenile life insurance is a financial tool offering children both financial security and flexibility to soar towards their dreams.
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