Buying child life insurance

Eileen McGeough bought life insurance for her two children after her neighbour’s teenage son was killed in a car accident almost 20 years ago. The sudden death and watching the family struggle in the aftermath left McGeough feeling vulnerable. At the time, the young mother knew she wouldn’t have the money on hand to bury one of her own children. For $15 a month per child, life insurance gave her some peace of mind.

“You don’t think about these things until something happens,” says Caledon, Ont.-based McGeough. “I just got scared and thought, God forbid, should anything happen it would be one less thing you’d have to deal with.”

The average cost of a funeral is $5,500, according to the Board of Funeral Services, but flowers, a reception and casket push it to $9,000 or $10,000. McGeough’s admits her $13,000 payout would ease the financial burden, although it would do nothing for the emotional pain.

It’s that stark reality, an uncomfortable juxtaposition, which often makes child life insurance a bit of a taboo subject: People don’t want to think about their child dying. But products and the way people view insurance has evolved since McGeough bought her policy. Back then it was marketed two ways: cover funeral costs and save for university.

“People used to use it as an education fund, but it’s less likely these days,” say brokers of LSM Insurance. With the introduction of the Canadian Education Savings Grant in 1998, which matched 20 per cent of a family’s contribution to a Registered Education Savings Plan (RESP), the popularity of child life insurance waned.

Insurance is a viable investment tool
But attitudes are shifting and people are looking at child life insurance in a new light, says certified financial planner Mark Halpern, president of “It really has to be viewed in the perspective of overall financial planning … Think investment.”

In other words, get out of the mindset of something bad happening to your child and instead view it as a tool to help plan for your child’s future.

A life insurance policy is a useful tool that allows you to grow money on a tax-free basis (with relatively consistent and decent returns when compared to the performance in recent years of traditional investment tools). Parents can choose a plan that allows them to transfer ownership of the policy, including investments, tax free to a child once the child reaches 18. These plans then allow the child to make withdrawals for any purpose — education, travel, buying a home — and although the withdrawals are taxed, it’s not likely to be much if the child has little or no other income.

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By Michelle Warren – On

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