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Life Insurance for Minor Children

Making Every Moment Count

The financial demands of moving from childhood to maturity—education, housing, familial responsibilities, etc.—continue to escalate for our children. Providing for those needs requires that we plan now to accumulate the funding necessary.

Under current tax law, the cash value in a life insurance policy accumulates tax-free, up to certain limits. This allows the income accumulation to compound without the erosion of annual taxation, providing greater growth in the value of the fund concurrent with the protection afforded by the policy.

If a parent (grandparent) acquires a life insurance policy on a child (grandchild), the policy can provide several advantages:

• Income accumulates and compounds on a pre-tax basis within the policy
• While the child is the insured, the parent is the policyholder who maintains control over the funds
• The policy can be transferred, tax free from the parent to the child (or another child who is not the insured child) at a time determined by the parent
• When the child reaches majority, income arising from the policy is taxed in the child's tax return, not the parents
• Policy cash value withdrawn by the child may be taxed at a lower rate depending on their other sources of income
• The policy cash value can be used to secure borrowings by the child, while maintaining the policy for protective coverage
• Future insurability of the child is protected, and the basic policy can be built on as needed
• This planning can be implemented for children, grandchildren, great grandchildren, a spouse, or common-law partner of a child, or children of that spouse or common law partner