Managing Your Money

Last week I had clients in my office and the topic of Christmas gifts came up. They were struggling with what to get for their grandchildren, who according to them “have everything!” They jokingly asked if I offered anything that they could give their grandchildren for Christmas, and this got me thinking…

In past articles, I have mentioned the idea of gifting children company stocks of their favorite things, instead of giving them more ‘stuff’. For example, giving an Apple share to a kid who loves their iPad, or Disney shares to the child who loves Disney movies. For older teens, maybe Adidas or Starbucks would fit the bill. It’s a way of giving a gift that ‘hopefully’ keeps on growing. I would suggest some research go into the decision, but the idea will give a child the opportunity to learn about stocks in a way they can relate.

This thinking led me to another option that parents or grandparents could consider as an alternative to giving kids more ‘stuff’. I know many parents and grandparents who easily spend $200 or more on the kids during the holidays or for birthdays. For less than that, you could protect your family from the financial impacts of a child suffering a serious illness. It’s one area of planning that is often neglected when it comes to children – the area of insurance, and specifically critical illness insurance.

Many things come to mind when we think of our children: their health and happiness, their future and financial security, and our own peace of mind. We don’t want to think that anything will happen to our children, but if your child becomes seriously ill it can affect the whole family. Think of how parents constantly try to protect their children with car seats, helmets, etc. Critical Illness Insurance can provide important protection that can last throughout a child’s life. And if you think children rarely get seriously ill, a quick tour of the Children’s Hospital will change that thought.

Basically, a critical Illness policy can help protect your whole family in the event that a child gets sick.  Most parents only focus on properly insuring themselves to protect their family in case of death or illness.  But let’s consider if a child gets seriously ill. Does one parent stop working to care for the child?  Do you hire help to care for the child or to help with household tasks? What if there are other children in the family to care for? What if there is an option to get more advanced medical treatment out-of-country? Are you going to be able to meet monthly financial obligations if one parent stops working? Mortgage payments? Will you have to forgo saving for retirement for a time? Or worse yet, end up going into your retirement savings? These are all questions to ask yourself if you have children.

Critical Illness insurance can pay you a lump sum amount if your child is diagnosed with a covered illness, which in turn can help cover costs of out of country care or help facilitate a parent taking time off work, giving you the opportunity to concentrate on your child’s recovery and maintain your lifestyle. One of the best features with the product I generally recommend, aside from the actual protection itself, is that there is no financial risk – and let me explain. With this critical illness product for children, you automatically have 75% of all your premiums refunded to you when your child turns 25 years old, assuming you haven’t actually made a claim for your child being ill. AND, you can get this refund without cancelling or affecting the policy at all!  The policy will keep going and you will have the option to cancel at any time in the future, at that point getting back 100% of the continued premiums you paid, including the 25% that you didn’t get back when your child turned 25.

With car or home insurance, you never get your premiums back even if you don’t make a claim. With critical illness insurance, it’s great to know that if you don’t need to use the insurance you can get your money back. It’s often considered as a savings plan for your child’s future or even your own retirement. Some will make the argument that you lose out on any interest or growth you would have earned had you invested the money instead, but I would argue that that having the peace of mind of insuring the quality of life for the whole family, guaranteed insurability for your child as they grow up, and protecting your own financial future in the event a child gets sick would outweigh the amount earned on an equivalent investment.

The cost of this product for children and teens can be locked in for their lifetime, making this an opportunity to create protection for your current family, and for your child’s eventual family, at the lowest rates possible.  And as it can be cancelled at any time, all the premiums paid in could be targeted to be pulled out at the time of a wedding, first house purchase, or even at your own retirement.  There is a great deal of flexibility in how this protection can be used.

Here’s an example: Let’s say you have a child or grandchild who is 8 years old. You want to start a savings plan to be used for something at let’s say 25 years old – maybe a wedding, home, education, etc.  You are prepared to save $100/month. So, you use a critical illness policy to build up those savings, while insuring your child against unexpected illness. When your child turns 25, this policy will automatically refund you approximately $15,000, tax free, and the insurance coverage will stay in effect.  You may at that point decide to have your child continue to pay the premiums if they are working. Those continued premiums, along with the 25% which wasn’t paid back to you in the first refund, will all be reimbursed, either when the policy is cancelled or at death, if no claim is made – which pretty much makes this product risk-free.

While we never expect ourselves or our children to become seriously ill, consider what the likelihood is of a policyholder not making a claim during their lifetime. How many people make it to 100 years old without dealing with a major illness like cancer, heart attack or stroke, Alzheimer’s or dementia? And with this type of product, those few who do, will receive all their premiums back.

While most parents who have financial responsibilities will insure themselves with critical illness insurance, many neglect to consider the impact a sick child would have on them financially. Take the time to consider the financial impact and have your Financial Planner evaluate the best way this product could fit into your financial plan. There are many different critical illness products out there so make sure you’re working with someone who has the knowledge and is unbiased enough to fit you with the right product. If you are a grandparent, consider this as a way you can help and protect both your adult child and grandchild.  We buy insurance – car, home, life, CI, etc – hoping we’ll never need it, however, it protects us against the “what-ifs” in life.

Lynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with over 23 years of experience working with retirees and pre-retirees. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or [email protected]. Or visit our website at www.EphtimiosMacNeil.com.

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