A Holistic Financial Plan Includes Whole Life Insurance for Kids
It’s not cheap to raise kids, so it’s important to make sure every dollar you invest in their future works as hard as it can. Helping them prepare for whatever comes next is an ongoing process that shouldn’t rely on one solution. Rather, a combination of savings and investment options, anchored by whole life insurance for kids, has the potential to check all the boxes.
It’s not cheap to raise kids, so it’s important to make sure every dollar you invest in their future works as hard as it can. As you look ahead, you can probably imagine them going to school, launching their career, maybe even telling you that you’re going to become grandparents.
Helping them prepare for whatever comes next is an ongoing process that shouldn’t rely on one solution. Rather, a combination of savings and investment options, anchored by a whole life insurance policy, has the potential to check all the boxes. You’ll be able to provide financial stability throughout their lives, give them access to money when they need it, and guarantee their eligibility for life insurance coverage forever. Those are powerful reasons to get things right.
Benefits of saving and investing for your child’s future
Some of the expenses of raising kids are relatively easy to predict and others are far more open-ended. For example, you can estimate when they might go to college or university, and how much they’ll need. But you can’t estimate their needs 30 or more years from now, when they may want to buy a home or open a business. A holistic approach to planning can help with the unpredictability, and has many other advantages:
Reaching goals
Goals and milestones can be matched with the right savings and investment solutions. Goals could include higher education, starting a business, or buying a home.
Building a solid financial foundation
Planting financial seeds early, as part of a family approach to planning, puts time on your child’s side, allowing interest on investments to compound longer.
Independence and responsibility
Including children in family financial decisions when they’re ready helps them develop an appreciation for planning. You can include them in money chats that are appropriate for their age and level of maturity.
Keeping more wealth in the family
Coordinating a multi-generational approach to financial planning that starts when your kids are young can create opportunities to pass on wealth, tax-free.
Risk management
At the heart of an insurance-based financial strategy is the long-term power to mitigate risk and protect assets.
Comparing whole life insurance for kids with traditional savings accounts and RESPs
When your kids are young, they have the advantage of a very long investment horizon. If you only invest in short-term savings vehicles, such as registered education savings plans, they will miss out on the long-term superpower of compound interest.
To make your money work as hard as it can, you should consider a three-part strategy that includes whole life insurance for kids, traditional savings accounts, and registered accounts that allow for tax-deferred growth and access to financial grants. Let’s review the pros and cons of each.
Whole life insurance for kids
Think of whole life insurance as the long-term part of your plan, one that can set kids up for a lifetime of financial security. You can learn about the advantages of insuring children in our guide to life insurance for kids in Canada.
| Pros | Cons |
|---|---|
| The cash value¹ (i.e., cash that is accumulated within the policy that can be accessed at any time) portion of a whole life policy increases, tax-free. | Your coverage could lapse if you are unable to keep up with the premiums (i.e., the amount you pay for an insurance policy). |
| Your kids will never be denied life insurance coverage due to a change in their health. | Premiums must be paid for life – unless you opt for the 20-pay option, where payments end after 20 years. |
| Whole life insurance policies are backed by insurance contracts and guaranteed to pay a tax-free death benefit (i.e., a payment made to designated family members or other loved ones). | Whole life insurance is more complicated than term life policies, which expire at the end of a specific period. |
Learn more about how whole life insurance works, and why it’s a popular option for Canadians.
Traditional savings
Consider traditional savings accounts as one of the most flexible components of your plan, one that helps your kids get ahead and learn about money. Low-risk savings accounts are easy to access and you can use them for any purpose – but they don’t grow as fast as most of the alternatives.
| Pros | Cons |
|---|---|
| The money in a savings account is easy to withdraw at any time with no penalties or restrictions. | Savings held in cash tend to generate very little annual interest. Pretty much any alternative to a bare-bones savings account would come with a higher interest option. |
| Amounts of up to $100,000 in savings, chequing accounts, guaranteed investment certificates, and other forms of term deposits are insured by the Canada Deposit Insurance Corporation (CDIC).2 | Over two decades, the interest you earn in a savings account may not even keep up with inflation, meaning it won’t go as far when your kids start spending it. |
| Most banks offer low-cost, high interest savings accounts that pay slightly higher interest, usually on minimum balances. | Because the money is so easy to withdraw, it’s also very easy to spend – which could mean less money towards your child’s financial future. |
Registered Education Savings Plan (RESP)
View an RESP as part of your plan that is a laser-focused investment with a single goal. Its only job is to get your children through postsecondary education at the lowest cost to you. And it’s the only financial tool that tops up your contributions by up to 20 per cent through the federal Canada Education Savings Grant (CESG), and lets your contributions grow on a tax-deferred basis.
| Pros | Cons |
|---|---|
| You’re eligible for government grants such as the Canada Education Savings Grant (CESG)2. | The government expects this money to pay for education. That’s why they give you tax breaks and grants. Withdrawals for other purposes may be subject to taxes and penalties. |
| You can direct a withdrawal of the RESP income and CESG by way of an Educational Assistance Payment (EAP), taxable to the beneficiary (the student), not the contributor (you). This is good because most students are in a low tax bracket, often with unused personal credits, so there’s usually no (or very little) tax owing. | If any portion of your RESP is invested in mutual funds or other equities, that amount could be subject to the ups and downs of the market. Therefore, there is a possibility that the account value may not meet the desired education funding goals. This is less of an issue when you work with an RESP specialist, monitoring the investment mix in your account, and managing your holdings within your risk tolerance. |
| You have a lot of flexibility when it comes to how and when you put money into an RESP and how it gets invested. | If your child, the RESP beneficiary, does not pursue post-secondary education, government grants may need to be returned, and investment income may be subject to taxes at your marginal tax rate (i.e., the highest tax bracket into which your income falls). |
| Your kids can use the money for anything related to school, like tuition, books, and living expenses. |
Why choose Serenia Life insurance for kids?
As a member-based organization that’s been around for nearly 100 years, we encourage kindness by sharing a portion of our profits through community outreach, fundraising, and unique member benefits that help Canadians support their family, their community, and the causes they care about. The more we grow, the more we can give.
We provide members with access to a growing collection of member benefits that make a positive impact on their lives and the lives of others, such as:
- $1,000 post-secondary scholarships
- $250 seed funding towards fundraising events
- Free digital wills (value: $189), or money towards drafting/updating a will through a lawyer
and much more - A free financial literacy book for members aged 0-12 years old (while supplies last)
View a full list of our member benefits
The bottom line
Whole life insurance, traditional savings, and the highly targeted RESP nicely complement one another. Whole life insurance for kids offers a lifetime of financial protection, the opportunity to generate wealth, and the right to lock in coverage for life. Traditional savings accounts, on the other hand, provide easy access to your money, relative safety, and simplicity. RESPs are a great way to boost your savings with tax-deferred growth on investments, such as mutual funds, and generous government grants.
If you want to make the money that you invest in your child’s future work most efficiently, talk to a Serenia Life advisor about how setting up the right combination of accounts can set your kids up for life.
Disclaimers
¹Cash values are accessible via a withdrawal, policy loan, or surrender. These may be subject to taxation and a tax slip may be issued. Accessing the policy’s cash value will reduce the available cash surrender value and death benefit.
2External links are for informational purposes only; they do not constitute an endorsement by Serenia Life Financial. Serenia Life Financial bears no responsibility for the accuracy, legality, or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.
