In the last budget, our government announced a plan that will see less fortunate children gain a free post-secondary education. I believe that this is a great gesture, as we no longer are going to limit post-secondary education to the fortunate. Everyone should be able to pursue a post-secondary education to better him or herself in today’s society.
The only problem we see going forward is that a post-secondary education is becoming very expensive even for the middle-class working families. Tuition costs have nearly tripled over the past 25 years with no end in sight, parents of today must plan for their children’s future education needs at birth.
We have RESP (registered education savings plans) accounts, which have a maximum investment limit of $50,000 per child. You are eligible for a 20% credit on your yearly investment from the government up to a maximum of $7,200. Their is a strategy involved in this investment portfolio to maximize the value of these accounts moving forward. But we will leave that for another article to come.
These accounts have become the main source of savings for most parents when we speak of education savings for their children.
In today’s dollars, it can cost up to $58,000 for your child’s post-secondary education. With that in mind, as the average cost of an education continues to rise the markets will have to perform extremely well for these accounts to provide the funds needed for the future. Not to mention that you will need to time your planned withdrawal of funds on high market returns. Volatility of todays markets can definitely be damaging to your child’s education portfolio.
Is there an alternative or another investment that could help enhance your child’s future education needs?
We believe there are products in the financial world that can be used to help enhance your present education funds.
Life insurance products such as whole life offer a guaranteed cash accumulation value component which grows inside the policy tax-free (within limits).
Yes, I said Life Insurance!
Permanent Life Insurance or Whole Life can provide the extra cash needed for the growing cost of your child’s education. Many people don’t like the idea of insuring their children. They believe that the kids do not need coverage or find it very morbid. That being said it is the cheapest form of financial planning that you can do for your child. There is merit in this type of planning regarding your children.
How does permanent insurance work?
The Cost of Insurance is based on age and health; this is lowest it will cost for your child and at a time when your child is at their healthiest. You are looking at paying pennies on the dollar for insurance coverage with a cash value that will compound annually inside the policy tax-free. Once a dividend is declared it cannot be taken back so you don’t have to worry about market volatility depreciating your account. This is a safe investment!
When it’s time to withdraw funds for your child’s education, you can either withdraw the accumulated cash value or take out a loan against the policy’s accumulation. If you take out a loan, your cash value can continue to grow, provided you repay the loan sometime in the future. Alternatively, you can surrender your insurance policy if coverage is no longer required and apply this money to your child’s education needs. The latter strategy could create a tax issue if you take out more money than you have invested in the insurance policy. Always consult your financial advisor on which strategy would work best for your situation.
Purchasing participating life insurance for your child or grandchild is a gift that keeps on giving. A participating life insurance policy has a cash value that can grow over time and can be accessed to pay for things like tuition, a new car, wedding, or a down payment on a house in the future. With your child’s insurance needs taken care of for life as long as the policy stays in force, they can focus on other key life priorities.
The value of this strategy is second to none in the investment world. You have insured your child’s future health at the lowest rate possible and secured an investment portfolio that will grow tax-free without the volatility of the market.
Consider the possibility of alternative planning.
Let us help @ Henley Financial & Wealth Management we are familiar with this strategy and others to help you create your family’s financial security.
You may also contact us at the following firstname.lastname@example.org