Child Life Insurance using Canada Life’s Whole Life Par Policy:
We just went through some basic ideas of whole life par policy. Let’s go over an illustration now. Suppose, a parent wants to set up life insurance for their 1-year-old boy. They may consider the Canada Life’s Estate Achiever Max 20. This plan only requires the premium to be paid for 20 years, then the coverage will last for the lifetime of the child. As of today, a 1-year-old boy with $100,000 coverage, the standard rate is $101.16 per month. According to the Canada Life’s illustration,
- At the 20th year,
- Cash value will grow to $17,400
- Dividend value will accumulate to $12,756
- Coverage will raise to $203,710
This creates a solid foundation of permanent coverage for the child. However, the coverage might not be enough since young families typically have more financial responsibilities at this stage of life. (i.e.: Mortgage, car lease, child’s education, daily expenses) He could consider to top-up with term insurance coverage at that time.
- At the 40th year,
- Cash value will grow to $32,900
- Dividend value will accumulate to $74,796
- Coverage will raise to $402,818
At this time, the permanent coverage might already grown to an amount that is well enough to protect most of the financial responsibilities. He might not need any term insurance anymore.
- At the 65th year,
- Cash value will grow to $64,300
- Dividend value will accumulate to $331,875
- Coverage will raise to $702,314
This is about the time the child getting close to retirement, the cash value, dividend value and death benefits have grown significantly over the years. The child will have many options in using this policy to finance his retirements.
As you could see, whole life par policy does worth consideration especially when the child is still very young. It may help them significantly through the different stages of life.
Other considerations:
The above figures are illustrated with the current dividend scale. Dividend scale, growth in the death benefit, premium are not guaranteed, and could be subjected to change. Tax implication could be involved when cancelling the policy to access the cash value and dividend value. Most insurance companies would require the insured’s parents to have life insurance coverage on themselves before applying for their child. The rationale of this requirement is parents are the one a child is depended on now, so the coverage priority should be on the parents first. Once again, one size doesn’t fit all, the above is only for information purpose, make sure to discuss with a financial consultant before making any decisions.
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