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Not Just for Life After Death: Using Life Insurance As A Retirement Income Plan

Millennial Parents’ Guide To Financial Planning For Children
By Michael Lampel

As a parent of three, I understand there is nothing we won’t sacrifice for our children’s future — including sleep, health, financial future, and yes, even retirement. When I had my first child the last thing I was thinking about was protecting her financial future. I was too focused on acquiring all the trappings of what I thought would give her a good life.

I knew my kids needed a good education, a nice home to live in, good manners and a solid upbringing to ensure they had a productive and happy life. The last thing I was thinking about was what should happen if I was not there to give it to them.

Life Doesn’t Always Follow a Plan

Unfortunately, we hear too many stories of others who, like us, dreamt of a bright future for their children, while also assuming they’d be around to provide and share it. But life just didn’t work out for them as planned, and now we — their friends, colleagues and family — witness first-hand the financial upheaval the family goes through when one of the parents is no longer around to help financially.

When I had my first daughter, my life insurance advisor came to see me. We had the proverbial and clichéd conversation of what happens if I’m not around anymore. What’s my plan to protect my spouse’s and children’s financial future?

I replied like all other parents: “Give me the minimum, and give me the cheapest.”

I remember the way she questioned my response, asking: “Are you sure that’s what you want?”

I told her I need to protect them for the next 20 years, and then they’re on their own. I figured by then we’d be financially secure enough — we wouldn’t need it anymore.

What You Think Is the Cheapest Probably Isn’t

My advisor asked me what I know about life insurance. From the mountain of commercials I’d watched both on TV and online, I replied, “I pay, I die, they get.” To my surprise, she explained that from her experience, she saw life insurance as the greatest gift of love we can set up for our family. After all, we won’t be around to benefit from it, so the only reason to do it is because we love our family and want to protect them.

She went on to explain to me all the types of life insurance choices in less than 60 seconds. I was shocked, because by the end I understood my choices very clearly and learned the cheapest option today wasn’t necessarily the cheapest at all.

She went on to explain that there are actually three types of life insurance contracts in Canada: Term Life Insurance, Universal Life Insurance and Whole Life Insurance. Or as she called them, rent, rent own and own.

1. Term Life Insurance

Term Life Insurance, is “rent” according to my advisor, and the cheapest form of life Insurance. With a term plan you’re renting a block of life insurance for 10 or 20 years. At the end of 10 or 20 years, they quintuple your price and if you don’t have a heart attack and renew at 85 they cancel the lease.

2. Universal Life Insurance

Also known as “Term to 100,” is rent to own. If you’re still alive at age 100, the life insurance company will send you a letter thanking you for the decades of premium payments and tell you it’s all paid off, please stop paying.

3. Whole Life Insurance

Whole Life insurance is the most valuable life insurance contract in Canada. With a whole life insurance contract, you’re buying a block of life insurance and — like your home after 20 years — it’s completely paid for life. No more payments ever required.

Under whole life insurance there are two separate types: there is non-participating whole life insurance, and participating whole life insurance.

With non-participating whole life insurance you own your block of life insurance after 20 years.

During your lifetime the life insurance company will pay you a little interest each year, which will grow tax-free inside your plan. Inside your life insurance contract.

Participating whole life insurance is the most valuable contract in Canada because from the moment you open the plan, you participate (share) in the profits of the life insurance company and those profits are paid to you as a tax-free annual dividend.

The annual dividends are deposited inside your contract and grow tax-free for during your whole life. After 20 years, you own the contract completely and you are free to use the cash values in your plan for any financial need in life, such as paying for your children’s education, down payment on a home, fulfilling your dream to start your own company, or even as a retirement income plan. That’s right because the cash values grow compounding tax-free during your entire life the cash values are so large you can actually use the annual dividend or the cash value as an added source of retirement income.

Whole Life Insurance Won’t Come from the Bank

When I asked my advisor if this benefit was new, she said that it started in 1847 and the life insurance companies haven’t missed an annual dividend since then. I asked why I hadn’t heard of this before and she replied, because the banks don’t have this plan and bank advisors can’t speak to you about life insurance inside the bank. If they don’t have it then they won’t tell you where to get it.

She asked me which life insurance I’d rather own, and I replied: “participating whole life”.

Life insurance is an investment parents use to show their love and protect their families. They can be rented for a cheap price, but we all know the saying: “you get what you pay for.

Retirement RelaxationParticipating whole life insurance is a true investment, which can be used not only to protect your family, but also to provide you with an emergency fund or even as a retirement pension plan. You just need the right advisor; someone who can create a personalized plan to help you choose what’s best for you.

On the next few posts I will share the differences between term and participating whole life so you can make a more informed decision on what’s best for you and your life and family. If in the meantime you have questions about Participating Whole Life or would like a second opinion on any plans you opened already, please email me at michael@insuranceforchildren.ca and I’d be happy to reply to any questions you may have.

Michael Lampel is President of insuranceforchildren.ca, Canada’s leading provider of financial planning for children. insuranceforchildren.ca provides parents and grandparents with personalized Child Plan™ solutions to help them build the secure future their children and grandchildren deserve. Child Plan™ is the fastest growing alternative to RESP and the only investment parents and grandparents can open for a child or grandchild in Canada. To learn more about Child Plan™ request a personalized illustration for your child.

Sample illustration of Child Plan™ Cash and Insurance Values

Based on a Monthly Deposit of $225 per month

Age Accumulated Cash Value Life Insurance Value
20 $80,448 (Education) $770,802
35 $184,850 (House) $1,070,880
45 $325,714 (Security) $1,343,568
65 $964,321 (Retirement) $2,082,564

Sample illustration is based on a $225 monthly premium for twenty years, starting when the child is less than 1. Cash and life insurance values are based on the current dividend scale of 6.0% from a Canadian Life Insurance Company. This example is strictly for illustrative purposes only, the annual dividend scale is not guaranteed and values may differ.

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*illustrations are reflective of the annual premium amount

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