by Jeff Scammell, Financial Advisor
With summer starting and kids getting off school, most people are finally enjoying the sunshine. This time of year can be very busy, getting the lawn furniture out, graduations, mowing the lawn, planning vacation and so on. With all of this busyness, I’ve found that some people have forgotten what Prime Minister Trudeau has given their families. No, this isn’t a political post, thank God. This is a reminder that in July, your new Canada Child Benefit payments will begin.
The Canada Child Benefit plan could potentially give up to $533/month per child! Of course this is income-tested meaning the more money you make the less benefit you get. Nonetheless, you most likely will see an increase in the current benefit (plus it is non-taxable!!). Most families will spend this increase in household income on bills, debt, vacations, etc. faster than it even comes in. But you are different aren’t you? You’re reading my blog post which tells me you want to better your financial situation or you have way too much time on your hands.
There is an excellent opportunity for families such as yours to better the future of your children with the improved Canada Child benefit plan. Let’s make those plans before the first payment comes in and you get used to spending it on other things. Let’s figure out how much you will be receiving. Click Here to estimate your benefit. Have you found out how much you will be receiving? Great! I’m going to walk through a scenario where we have 1 child under age 6 and family income of $70,000 and receiving $315 a month. This should make it easier to comprehend.
So what are these opportunities that we should be looking into with this new found money?
- Registered Education Savings Plans (RESP)
- Life Insurance (with guaranteed insurability)
- Critical Illness Insurance
- Family Contingency Fund (a nice way to say emergency fund)
Registered Education Savings Plans
As an advisor, parents and grandparents are always asking me about setting up RESP’s. This is of course an excellent vehicle to save for your child’s future education. Within certain limits, the government will match up to 20%. So let’s look at the scenario of taking about $200 of that original $315 and applying it to an RESP. This would be $2400 a year from the Child Benefit for Education, then, the grant would kick in an extra $480 to bring your total RESP for the year to $2880. Starting early at say age 1, and continuing to make those payments earning about 5%, by the child’s 18th birthday, they would have $50837 in their RESP.
RESP’s are investment vehicles that can be invested in a variety of ways. Some institutions only invest these in low-risk Guaranteed Income Certificates (GICs). The word risk tends to scare people away from “gambling” their children’s education savings. This is not the attitude to have as this is a long term investment (17 years in this case). Therefore, the investment selection should be appropriate for a long term investment to achieve growth. Talk to your financial advisor about what your options are.
Permanent Life Insurance (with Guaranteed Insurability)
Many of us had small life insurance policies put on us when we were first born. Many of us probably still have them but our parents own them. Life insurance can be a very thoughtful gift to give your child. It shows that you care about their future insurability and it is also an interesting savings vehicle that is accessible to your child or yourself at some point in the future.
Before we dig too deep into the fancy bells and whistles of this product, let’s not forget the initial reason we get life insurance. It is a payout of tax-free money in the event of a death. Of course none of us want to think about our children dying, but should we be faced with that reality, most would like to have the financial means to have a proper funeral and burial, as well as take time off of work to grieve.
Now, to step away from the negative thoughts, lets discuss what a proper insurance plan can do for your child in the future. Firstly, once a permanent policy has been put in place it cannot be taken away for health reasons. So we are “locking in” the good health of your child today. Then, we would add “guaranteed insurability” to the policy which would allow them to buy MORE insurance when they are older and have a bigger need (for example buying a house, getting married, etc.).
On top of providing the protection we discussed above, these policies also tend to carry a cash value that is accessible at later ages. This cash value can actually have some significant growth after 20 years of being in force and can be accessed by either you or the child depending on who owns it at that time. Many 20 somethings have used this cash value to fund a wedding or a down-payment on their house.
Therefore, Permanent Life Insurance can provide so much to your family or your child than most people originally thought. This is something to certainly discuss with your Financial Advisor.
This is part one of a two-part series. PART TWO, which includes an example put to action and ending with results, can be found here.