Introduction
Key Takeaways:
- Life insurance for children can help cover unexpected funeral costs and provide parents with financial stability during difficult times.
- Purchasing life insurance at a young age secures the child’s insurability, even if their health changes later in life.
- Various types of life insurance policies are available to cater to different needs.
- Certain life insurance policies can also help build financial security for the child's future.
Why Consider Buying Life Insurance for Your Child?
There are two primary reasons to consider life insurance for your child:
- Planning for the Unthinkable:
While no parent wants to imagine losing a child, life insurance can help alleviate the financial burden of funeral costs. It also provides parents the flexibility to take time off work to grieve without immediate financial stress. - Guaranteeing Insurability:
A child’s current health doesn’t guarantee their future insurability. Health issues that arise later may make it challenging or costly to obtain life insurance. Securing a policy now ensures they can convert it to an adult policy without a medical exam, locking in a lower premium rate.
Advantages of Buying Life Insurance for Your Child
- Lower Premiums: Since children are young and generally healthy, their premiums are typically much lower than those for adults.
- Future Financial Security: Life insurance can provide a foundation for financial stability as the child grows.
- Cash Value Growth: Policies with cash value have more time to accumulate, creating an asset your child can access in the future.
Types of Life Insurance Policies for Children
- Term Life Insurance:
- Cost-effective coverage for a specified term.
- Often added as a rider to a parent’s existing policy.
- Permanent Life Insurance:
- Includes a cash value component that grows over time and can be accessed during the child’s lifetime.
- Coverage can be transferred tax-free to the child when they turn 25.
- Offers lifelong coverage, regardless of future health changes.
- Higher premiums compared to term life insurance due to the added cash value feature.
How Much Life Insurance Should You Buy for Your Child?
When determining the coverage amount, consider the following:
- Funeral costs, which can range up to $10,000.
- Income replacement for the time parents may need to grieve and recover.
Additionally, think about how the policy aligns with:
- Long-term financial goals for your child, such as supplementing retirement income or funding major life expenses.
- Your overall family financial plan, including savings for post-secondary education.
Ensure the premium fits comfortably within your household budget.
How to Buy Life Insurance for Your Child
If you decide to purchase life insurance, here’s what you’ll need:
- Determine how much you can afford monthly.
- Prepare identification documents for yourself and your child (e.g., SIN, birth certificate, passport).
- Provide proof of income, such as a pay stub or employment letter.
- Share proof of address, like a signed lease or mortgage statement.
Reach out to a financial advisor to explore flexible and affordable plans, such as Canada Life My Term™ policies, that provide tailored protection for your family.
What's Next?
Now that you understand the benefits of life insurance for children, consider the following steps:
- Meet with an advisor to explore how life insurance fits into your financial strategy.
- Discuss the type of policy that best aligns with your family’s needs.
- Secure a policy to protect your child’s future insurability and financial well-being.
By taking action now, you can safeguard your child’s financial security and provide your family with peace of mind.
This article is written for educational purposes.
Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.
Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.
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