Serving eastern Canada's wall and ceiling industry

By: Glenn Ayrton

The lazy days of summer are here – the sun is shining and you’re looking forward to BBQ dinners and relaxing on your patio. The kids are all set … they made it through another year of school, kids’ camp is booked, and their life insurance has been set up.

Did I just say life insurance? For children? You bet. If you haven’t considered adding life insurance for your children or grandchildren into your financial plan, this summer is a good time to take another look. Many people believe that the only advantage of life insurance is the one time death benefit. While this is one reason to purchase life insurance in general, it is not the primary reason why juvenile life insurance is purchased. In contrast, insurance for your children provides an excellent basis for their financial life. In the current market turmoil, insurance also provides stable growth for your overall portfolio. Summarized below are a few of the benefits of juvenile insurance for you and your child or grandchild.*

The future growth of the cash values within the permanent life insurance policy are attributed to your child, not you, the investor. Furthermore, when you transfer ownership of this asset to the child (or in the case of grandchildren, to his or her parent) there are no tax implications for you. This provides for an excellent tax planning strategy.

Just as in an RRSP, the preferential taxation of permanent life insurance offers tax-deferred accumulation of the cash values within the policy. The tax deferred return on “Participating Account” assets after investment expenses was 6.2% in 2007.

You maintain complete control of the policy and its cash value until you by / Glenn Ayrton wish to give that control to the child or their parent. Other savings vehicles for juveniles force the contributor to give up control of the asset when the child reaches 18 years of age. In the case of trusts, you are deemed to have disposed of the asset and taxed on the resulting growth after 21 years. You do not have to give the child control of the life insurance policy until you feel that the child is responsible enough to use the asset appropriately.

When you decide to give the child control of the policy, if any withdrawals are made by the child, they are taxed at the child’s marginal tax rate – which is presumably less than your personal rate of taxation.

A preferred beneficiary designation (certain immediate family members) protects the cash values from potential creditors of the policy owner.

The policy will last for the entire life of the child. You 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. You have provided them with a lasting legacy.

You will have provided a base of life insurance coverage for the child’s future obligations.

The Guaranteed Insurability Benefit will give the child the ability to purchase additional insurance in the future without regard for the child’s insurability. Regardless of the child’s health, hobbies or occupation, they are guaranteed the right to purchase a predetermined amount of insurance a various ages in the child’s early adult years. You are giving the child the opportunity to provide for their children in the future. This amount is up to $600,000.

The product is structured so that there can only be 20 years of premium payments. After that time the product is considered to be fully paid-up, that is, no more premiums are required. Also, premiums can be reduced or stopped earlier than 20 years.

If you would like to work with a financial advisor to incorporate juvenile life insurance into your Master Financial Plan, please contact Glenn Ayrton at ClearWealth Advisors at 604.687.6808 or <info@clearwealth.ca>. If you have a suggestion for a financial topic that you would like me to address in a future issue of The Trowel, please email your suggestion to <info@clearwealth.ca>. GA