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Finances for the Family

Insurance is a Part of Your Child’s Future

February 23rd, 2014

Submitted by Sun Life Assurance Company of Canada

As I weigh the pros and cons of buying life insurance for my little girl, I'm thinking about the life insurance policy that my dad bought for me when I was still in diapers.

He must have spent considerable time collecting information before making such an important decision that over time proved to be very beneficial to me.

I think I had better follow his example and learn all I can about the subject, and in particular, what kind of benefits it can and can't deliver.

This is what I have discovered, and if you're considering buying life insurance for your child or children, you might want to ask yourself some of these same questions and consider the possible benefits.

"Insurability”  What is it and why do I need it?

Guaranteed insurability allows my child to buy more life insurance at specified times up to her 45th birthday, no matter what her health, occupation or lifestyle may be. This ensures she'll have access to additional insurance, even though she may become otherwise uninsurable. With some insurance policies, the guaranteed insurability benefit gives her six opportunities to buy $150,000 of additional insurance, and her age or health won't be a factor.

Could my daughter become uninsurable in the future?

Sadly, yes.  A common obstacle to buying life insurance is a medical condition, such as heart disease, diabetes, or HIV. It's possible that some day, my child might not be able to get life insurance because of a health condition. Even if she's accepted, the bigger the risk, the higher the premium she'll have to pay.

The hobbies and adventures my child chooses to pursue may make her ineligible for insurance.

If my daughter decides to race motorcycles or if she takes up sky diving or scuba diving, insurers will consider her as a higher risk. However, if the policy I buy for my child has guaranteed insurability, she won't be penalized for being adventurous.

What's the financial benefit of buying insurance now?

As I'm quickly finding out, babies grow up fast, and one day she may want her own life insurance policy, especially if she has her own family.

Insurance advisors will tell you to "buy it now and save." Buying a permanent insurance policy now means that premiums will be paid over a longer period, but my daughter will pay less if she takes over the policy when she becomes an adult. Any insurance advisor can show you the difference between premium costs at age zero and costs at the age of 25.

Another possibility for providing protection for my child is the child term attachment. It insures my daughter under my policy, allowing me to include my entire family when I make my personal insurance decisions. Child term is a good option, since it has built-in guaranteed insurability. It's also good for people who are uncomfortable having large amounts of insurance on their children.

With permanent life insurance policies (whole life and universal life), a cash value can provide a fund to draw on for future opportunities.

Premiums paid into a permanent life insurance policy build up equity in the form of cash value. I remember borrowing $1,000 on the policy my dad bought for me. I put the money back into the policy a little while later. The cash value of the policy is an asset that helped me establish credit, helping me to get a down payment from a bank for my first car.

In a way, though he didn't know it, my dad started my financial program way back in 1960. Just as I did with my policy, my daughter might want to use her policy's cash value to borrow money to pay for school supplies or cover an emergency expense. The borrowed money would also help her take the important step of establishing credit.

The cash value also ensures her policy will remain in force if, at some point in the future, I'm unable to make premium payments.

What if the unthinkable happens?

As much as my wife and I avoid talking about life insurance for our little girl, realistically we have to admit that if something happens, our family income levels would be seriously affected. One of our first needs would be to take time off work, likely for an extended period. My wife is self-employed and wouldn't have paid bereavement time from a company. The proceeds from life insurance would help.

I've weighed the pros and cons and I'm convinced that I'll buy insurance for my daughter. One last thing to do, though: I must call my financial advisor to find out if I have missed or forgotten something. I want to make sure my decision is based on all the facts, including the benefits and the risks.

My dad wasn't a financial genius (and neither am I), but he made a wise choice that paid benefits. He'd be proud that I'm following in his footsteps!

© Sun Life Assurance Company of Canada, 2014

Questions about Insurance, Investments or Financial Planning?

Sunlife Financial – Katy Pleasuk

780-424-8171 ext 2290

2928 10303 Jasper Avenue

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