As a parent, you want the best for your children. One of the ways to ensure their financial security is to use their Canada Child Benefit to buy and pay for life insurance early in their life. While this may not be a common practice, it can have significant benefits for your child’s future.
What is the Baby Bonus?
In Canada, the Baby Bonus program is a federal initiative that provides financial support to families with children. The program is officially known as the Canada Child Benefit (CCB), and it provides a tax-free monthly payment to eligible families.
Here are some key details about the Baby Bonus in Canada:
Eligibility: To be eligible for the Baby Bonus, you must be a Canadian resident, have a child under the age of 18, and be the primary caregiver of the child. You must also file your taxes every year, as the amount of the payment is based on your family’s income.
Amount: The amount of the Baby Bonus payment varies depending on your family’s income and the number of children you have. The maximum payment for the 2022-2023 benefit year is $6,833 per child under the age of 6 and $5,765 per child aged 6 to 17.
Payment schedule: The Baby Bonus is paid out on a monthly basis, with payments typically made on the 20th of each month. The amount of your payment will be calculated based on your income tax return from the previous year.
Why buy life insurance for your child?
Buying life insurance for your child is not something that many parents think about. After all, children are typically healthy and have a low risk of developing medical conditions that could affect their insurability. However, there are several reasons why buying life insurance for your child early in their life can be a smart financial decision.
Lower premiums
When you purchase life insurance for your child at a young age, the premiums are typically much lower than they would be if you were to wait until they are older. This is because young children are generally healthier and have a lower risk of developing medical conditions that could affect their insurability. By locking in a lower premium at a young age, you can save money in the long run.
Guaranteed insurability
Purchasing life insurance for your child at a young age ensures their insurability, even if they develop a medical condition later in life. Most life insurance policies offer guaranteed insurability, which means that your child can continue to renew their policy or purchase additional coverage without the need for a medical exam or questionnaire.
This can be especially important if your child develops a medical condition that could affect their ability to obtain life insurance later in life. By purchasing a policy early, you can ensure that they have coverage regardless of their health status.
Cash value accumulation
Permanent life insurance policies, such as participating whole life, can accumulate cash value over time. By purchasing a policy for your child early in their life, the policy will have more time to accumulate cash value, which can be used for a variety of purposes in the future.
For example, the cash value can be used to pay for college or graduate school, start a business, or provide a financial cushion during times of economic hardship. The cash value can also be borrowed against or withdrawn, although doing so may reduce the death benefit and/or result in tax consequences.
Estate planning
Life insurance can also be used as a tool for estate planning. By purchasing a policy for your child, you can ensure that they have financial security in the event of your untimely death. The death benefit can be used to pay for final expenses, such as funeral costs, or to provide a financial cushion for your child.
In addition, life insurance can be used to transfer wealth to your child without the need for probate. This can be especially useful if you have a sizable estate or if you want to pass on assets to your child tax-free. Life insurance proceeds are generally not subject to income tax, so the death benefit can be passed on to your child without any tax consequences.
Using your child’s Baby Bonus check to pay for life insurance premiums can be an effective way to start building a financial foundation for your child’s future. By doing so, you can ensure that your child has financial security in the event of your untimely death and that they have access to cash value that can be used for a variety of purposes.
Conclusion
Using your child’s Baby Bonus check to buy and pay for life insurance early in their life can have significant benefits for their future financial security. By locking in a lower premium, ensuring insurability, accumulating cash value, and providing a tool for estate planning, life insurance can be an effective way to start building a financial foundation for your child.
Legacy Banking™ is a safe, secure and tax-free way to build real and accessible liquid wealth for your children that they can borrow from to start a business, purchase a home or pursue a higher education. Legacy Banking™ for Children is the fastest growing alternative to RESPs and TFSAs in Canada. Visit www.canadianpartnersfinancial.com/legacybankingforchildren, complete the form in seconds, and receive your free illustration.
If you need assistance developing a financial roadmap or strategic wealth plan, don’t hesitate to contact one of our qualified financial advisors who can help you achieve your goals.