What is juvenile life insurance and how do I know if it is an appropriate planning tool for my children and family?
Purchasing life insurance for your children, or even your grandchildren, is a strategy that creates significant value for you, your children, and the generation beyond.
When I think about why I have this product for my own kids, it goes far beyond simply having a basic life insurance plan in place. One of the most important benefits of juvenile insurance is the protection of future insurability and the creation of a foundation of life insurance that can be built on into the future. Regardless of what happens in my children’s lives, a juvenile insurance policy will ensure that they always have coverage that increases over time and gives them options in their adult years to increase coverage at guaranteed standard rates, no questions asked.
Here are some of the benefits of owning juvenile insurance:
Future Insurability:
The optional inclusion of the a “Guaranteed Insurability Benefit” provides your child the option to purchase additional insurance at various ages regardless of their health, hobbies, or occupation. This is especially important if they have experienced a challenge to their insurability at some point in their life.
Life Insurance Foundation:
A life insurance policy acquired now will provide a base of permanent insurance coverage to meet your child’s future obligations. This base will grow in value as time passes. Because life insurance is based on the age at the time of acquisition, premiums will never be more than they are today and can never be changed by the insurer in the future.
Tax Deferred Growth:
As mentioned previously, the value of a juvenile insurance policy will grow over your child’s lifetime, but this growth is not attributed to you (even though you are the investor) for Income Tax Purposes. Permanent life insurance offers tax-deferred accumulation of the cash values within the policy, just like an RRSP.
Vested Growth:
Unlike other accumulation vehicles, growth of the cash value of an insurance policy vests. This means that even if future investment performance declines, the cash value of your policy can never go backwards.
Since a portion of future growth is always guaranteed despite changing investment returns, values in the future are guaranteed to go up, guaranteed never to go down.
Control:
You maintain complete control of the policy and its accumulating value until you choose to give that control to your child. Other savings vehicles for children force the contributor to give up control of the asset when the child reaches 18 years of age. You do not have to transfer control of a juvenile insurance policy until you are confident that your child will use the asset appropriately.
Tax Free Ownership Change:
When you transfer ownership of this asset to your child, there are no tax implications for you or your child. If, after transferring control of the policy to your child, they choose to make withdrawals, all or a portion of these withdrawals may be entirely tax-free. Any amount that is taxable is subject to tax at your child’s marginal tax rate, not yours. (Presumably, your child will be in a lower tax bracket, allowing them to access their funds at that lower rate.)
Finally, since it is a life insurance policy, death benefits are paid tax-free regardless of who owns the policy.