Preparing for a New Addition to the Family? Embrace the Adventure, but Plan for the Unknowns.
The journey of parenthood is filled with thrilling moments and challenges. From the first day at school, mastering driving, attending parties, to navigating the world of dating, there’s a lot to anticipate as your child matures and seeks their own path. However, financial concerns shouldn’t overshadow these moments. Let’s delve into the crucial financial elements to ensure a secure foundation for your expanding family.
Setting Aside Funds for Significant Events
Life is a series of memorable events, and for your child, milestones like pursuing higher education or acquiring their first home stand out. These are not only pivotal but can also be expensive. So, as a budding parent, what steps should you take now to be financially ready for the future?
Higher Education: The immediate thought for many is the escalating expenses of tertiary education. With tuition and accommodation costs soaring, it’s wise to start saving early. The government-backed Registered Education Savings Plan (RESP) is a commendable option due to:
- Government incentives: They’ll match 20% of your contributions, up to $500 annually, with a total cap of $7,200. That’s essentially free funds!
- Tax-efficient growth: You can deposit up to $50,000 per child in an RESP. While withdrawals are taxable for the student, their tax bracket is usually lower, making it beneficial.
First Home Purchase: With the rising cost of living and home ownership concerns, parents often ponder how to support their child’s first home purchase. Here are some strategies:
- In-trust-For (ITF) accounts: As a trustee, you can deposit or invest in the account for your child. The funds should be used for their advantage, and they gain full access upon reaching the legal age in their province.
- Downsizing: Once your child moves out, consider relocating to a smaller home and gifting a portion of the proceeds to assist them in their home-buying journey.
Life insurance benefits: Permanent life insurance for your child can offer numerous financial perks. Until you decide to transfer the policy, you retain control over its terms and cash value.
Leveraging Insurance for Financial Stability
Is insurance a viable tool for safeguarding your child’s financial future? Absolutely! Insurance products can ensure future insurability for your child and offer tax benefits for future access.
Here are some insights on juvenile life insurance and its financial benefits:
- Guaranteed insurability: Many policies allow benefits to accumulate. Securing such a policy ensures a payout in the future, irrespective of any health issues your child might encounter later in life.
- Asset growth: These policies can amass substantial values, accessible by the policyholder, and grow tax-free!
- Predictable expenses: Such plans often come with a set payment structure, which can be managed by parents or even grandparents.
Additionally, critical illness (CI) insurance offers unparalleled protection:
- Holistic protection: CI insurance, often termed as living benefits, covers a wide array of illnesses, including the big three: cancer, heart attack, and stroke. Policies for children typically cover 25 major conditions and several child-specific ailments.
- Asset retrieval: Many child CI policies feature premium return options. If the benefit remains unused, the policyholder can reclaim the premiums paid, ensuring the policy remains active.