The Elephant in the Room
Give your children a gift that will last a lifetime
Many Canadian parents save in an RESP for the purpose of funding their children’s post-secondary education. The federal government will contribute up to a maximum $7,200 towards each child’s post-secondary education provided you save $36,000, making the total available $43,200 (assuming your investment doesn’t lose any money and/or growth remains flat).
Like an RRSP or TFSA, an RESP is simply a vehicle that holds investments and not an investment in itself. Growth really depends on what happens with the underlying investments.
According to a recent BMO study, the cost of a 4 year undergraduate degree will rise to $140,000 for a child born in 2012, so the following questions arise:
- Can you predict what the actual cost of post-secondary education will be 17 or 20 years down the road?
- Will saving in an RESP alone be sufficient to fund your child’s post-secondary education?
The answers are a most likely a resounding “NO”, and I would like to suggest that the real reason that all Canadians want their children/ grandchildren to go to college or university is to set them up for financial success. An education is therefore (among other things) a tool for providing financial success and stability.
Parents should be concerned about making smart money decisions (which certainly should include saving in an RESP) for their children today, that will set them up for financial success tomorrow. In fact, smart money decisions today will take care of many concerns including funding post-secondary education, and with the rising cost of post-secondary education, it is unlikely that RESPs alone will not get the job done.
We recently helped one of our clients use an insurance policy to secure the following for her son:
- Guaranteed permanent insurance coverage
- Guaranteed total she will pay into the policy for 20 years (no payments after 20 years) – $22,020
- Guaranteed cash values over child’s lifetime – $100,000
- Potential dividends of approximately $35,000 that can be withdrawn at age 30, and still have in force guaranteed life insurance coverage and cash values.
- Potential legacy for her son’s children if he allows dividends to accumulate; and assuming the dividend scale remains the same – up to $1.6 million
Our client in the above scenario actually asked us for this specific financial product (pays dividends) because her parents were astute enough to use this very strategy (when she was a baby) to help set her up for financial success. She withdrew the dividends to put toward the deposit on her home, and she still has life insurance in force that she can leave for her son when she passes away; plus her cash values which are guaranteed continue to grow.
It was like her parents put money into an account for her when she was a baby, she withdrew all the money her parents put in years later, and she still has money in the account today (some of which she is currently using to set up her child for financial success).
Life insurance on children is not about the morbid thought of death, but rather about providing them with a financial gift that will last their lifetime.
This holiday season, deflate the elephant in the room and give the ones you love a financial gift that will last for their lifetime.
About the Author
Karl Marshall is President of Marmac Financial Services Limited, an independent insurance and investment brokerage. He lives in the Durham Region and on Saturday nights he hosts The Party Mix on G98.7 FM in Toronto. You may contact him via email firstname.lastname@example.org @marmacinsurance on Twitter or on Facebook.