Start your grandchildren off on the right foot with a Gift for Life, a financial product that will provide them with an asset for the entirety of their life.
How does it work?
- A participating whole life insurance policy is purchased. The grandparents are the policy owner(s) and the grandchild is the insured.
- The policy owner pays the premiums, which will often last for a period of 10-20 years. This can be set-up through a term-certain annuity or lump-sum payments for shortened payment lengths. This is a flexible and customizable component.
- Once the grandchild reaches the age of majority, they are able to take over ownership of the policy.
Why is participating whole life insurance valuable on the life of a minor?
- It guarantees the minor’s insurability, both today and into the future. Regardless of what may happen with their health as they age, they have in-force life insurance to protect their future loved ones.
- It provides the grandchild with a growing asset. Participating whole life insurance has an investment component, called cash value, which is fully accessible and can be used (through withdrawal or leveraged loans) by the grandchild when they get older. The cash value grows over time due to dividends that are issued to participating policy holders. Possible usages of the cash value could include post-secondary education, a vehicle, a deposit on a first home, or any other way the policy owner deems fit. The investment component of the permanent insurance policy grows on a tax-sheltered basis (based on tax-exempt status).
- It offers a way for the grandparent(s) to transfer assets to their loved ones on a tax-effective basis. As the policy owner and premium payer, there are no tax considerations to be concerned of as long as the policy remains tax-exempt, which is easily accomplished. For grandparents who are financially comfortable, allocating a small portion of their wealth into this product for their grandchildren is an effective tax & estate planning technique and provides a long-lasting legacy.
Here is an example of pricing and the financial aspects of the product:
- Insured is 2 years of age
- Grandparents purchase a $100,000 participating whole life policy. This particular policy requires payments of $298 per month for 10 years. Once the insured reaches age 12, the policy is fully “paid-up,” meaning no further insurance premiums are required.
- This policy comes with guarantees as well as projections based on current interest rates, investment returns, and other administrative factors. The projections are subject to change and can be viewed as estimates based on today’s data. See below:
| Insured Age | Projected Face Amount | Projected Cash Value |
| 22 | $286,100 | $34,300 |
| 42 | $635,100 | $141,200 |
| 62 | $1,227,000 | $505,500 |
*illustration created with ManuLife Par software*
So, as evidenced in the above chart, a financial commitment of less than $36,000 over 10 years can provide the grandchild with an enormously valuable and flexible financial asset for the entirety of their life.
This is merely an example of how the product looks from a cost perspective. Amounts can be altered to fit within any budget and the length of time that premiums are payable can be shortened or lengthened.
Click here for a comparison between the above example and an alternative investment
Lastly, for grandparents using this financial strategy to gift assets to the next generation on a tax-effective basis, there is the opportunity to pay for the premiums using an annuity. In the example above, payments of $298/month are required for 10 years. A commonly-used technique is for the grandparents to purchase a term-certain annuity, in this case for 10 years, to ensure the payment obligations will be taken care of. The annuity payments go directly to the insurance policy and the grandparents do not need to worry about ongoing premiums.
If you have children, grandchildren or other family members that you are interested in exploring this avenue with, please reach out to Jeff Graham for more information at (604) 363-7549 or jeff@firstoakfinancial.ca.
DISCLAIMER: this commentary is provided for general informational purposes only and does not constitute financial, insurance, investment, tax, legal or accounting advice.