Being a parent can be like being a juggler trying to keep a bunch of tennis balls in the air at the same time. Between kid’s activities, and work, and running a household, and all of it costs money, and nobody is getting enough sleep… Okay, it’s more like juggling chainsaws than tennis balls. Blindfolded. While on a unicycle.
Today I was putting together a life insurance illustration for a client’s new born baby. The math never ceases to amaze me.
Now, insurance on kids is a strategy that not everyone supports. Some people will say “why would I have insurance on a child? They are a liability, not an asset.” Frankly, that’s an asinine thing to say.
Losing a child is too horrific to contemplate. Any parent that I have ever met would be so completely distraught with grief that it would be a long, long time before they were able to function. Can you imagine losing a child, and then on top of that having to go to work on Monday because you don’t have the financial means to get through this nightmare?
That’s not where the math comes in though. This is a policy that has a $1000 annual premium – less than a hundred bucks a month – and it’s fully paid up in twenty years. The current dividend is 6.8%, and historically that has been remarkably stable. The money is going to grow in a very tax friendly environment. And this is how the magic happens.
If you compound money over a long time at a good rate of return in a tax friendly environment, good things are going to happen. This policy is projected to have a $1.2 million death benefit when the kid turns 85. Or maybe the significant cash value of the policy goes to help supplement the kid’s future retirement. Not bad for a $20,000 investment made by the forward-looking parents. They can turn the policy over to the kid once he is grown, and this could be the only insurance the kid will ever need.
As cool as this is, if the chainsaws that you are juggling aren’t co-operating right now, this might not be your first priority. Generally speaking you will want to have a handle on your cash flow, and probably be on top of RESPs first. But if you have already addressed your other financial objectives, then have a look at giving your kid a head start in life with an insurance policy. I have had some clients say it’s the best investment that they have ever made.