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Grant Rayner
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Grant Rayner   My Press Releases

Life Insurance for Children?

Published on 8/19/2018
For additional information  Click Here

Life Insurance for Children?

Recently, I watched an ad on television for the "Gerber Life" plan.  This is a life insurance plan for children that is accompanied by what the insurance company markets as a savings plan for your child. In other words, there is an investment component to the plan.  Part of each month's premium (the monthly cost) goes to the life insurance component and part of each month's premium goes toward funding the 'savings' part of the plan.

Many people find this attractive.  The plan provides low-cost life insurance for the child and, at the same time, builds equity in the plan. Life insurance purchased at an early age is not a bad idea.  Once you are enrolled in the plan, in most if not all cases, the insurance contract cannot be cancelled by the company. So, in the event the child becomes uninsurable at some stage in her/his life due to accident or illness, the company cannot cancel the life insurance.

The investment component is another matter.  Typically, the savings part of what are called "Whole Life" insurance contracts are not great vehicles looked at strictly from an investment point of view.  In other words, the yield or rate of return on the investment is often very low.

An alternative that should be considered if you wish to purchase life insurance for your child and also wish to start a savings plan for that child is to purchase what is called "Term Insurance".  Term insurance is life insurance only and is typically far less expensive than the "Whole Life" type of coverage.  To start the savings aspect, take the difference between what you would have paid for the monthly premium for "Whole Life" and use that saving to fund an alternative investment.  For example, you could use that monthly saving to contribute to a mutual fund for your child.  

If you then compare what the child would have in terms of a capital sum at the end of, say 18 years, the difference between the capital sum in the "Whole Life" insurance and the capital sum in the mutual fund is often staggering.  It will not surprise you to learn that this huge difference is the profit to the insurance company that otherwise could be the profit enjoyed by your child after 18 years of monthly contributions to a savings plan.

Starting a savings plan for your child is often an emotional purchase.  Don't be fooled by the insurance companies.  Before you purchase life insurance for your child through Gerber or any other company, book a consultation with a reputable investment advisor.  You will see for yourself the staggering  difference between the returns generated from the savings component of a Whole Life type of insurance plan and the returns generated from monthly contributions to a reputable mutual fund plan.

To Your Continued Success,

Grant Rayner, Barrister & Solicitor, London, Ontario (coachgrant)



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