Many grandparents choose various life insurance and investment choices as a token of unconditional love and to financially safeguard their grandchildren’s future. Your Grandchild-
If you have the necessary resources to financially assist your grandchildren or leave behind a legacy that will benefit them in the future, life insurance or education saving plans are great options. If you are looking to invest in a child plan for your grandkid, read more.
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Why is life insurance/investment necessary for your grandchildren?
With rising inflation, the cost of college tuition is skyrocketing. In fact, the college tuition fee is one of the costliest expenses that many families have to incur. And the cost will increase every passing year.
Most grandkids aspire to attend higher education, acquire a degree from prestigious colleges, start their own businesses, opt for apprenticeships and other relevant training programs to gain high-income skills in the competitive world. Saving and investing for your grandchildren can remove the burden of enormous student loans in the future.
Invest in and get the greatest insurance policies for your grandchildren so that they can get a good start in their school, careers, and future lives and avoid falling into a debt trap early on.
To sum up, insurance policy and investments can be beneficial for:
- Managing school fees
- Pursuing higher education
- Cater to your grandchild’s field of interest, e.g., professional dance/music/art training
- Managing costs during uncertainties in the market
- Financial support for wedding
Which financial security plans should you invest for your grandchildren?
The best insurance policies and investment schemes for grandchildren are those that take care of the long-term costs (college fees, training program costs) and protect against future expenses, too (emergency healthcare, business startup funds).
Life insurance for grandchildren
Most people are on the fence about the value a life insurance policy will yield in the future.
However, the following are the benefits of getting a life insurance policy for your grandkid:
- Life insurance for grandchildren can be opened at a very early age. Many insurance agencies provide insurance policies that you can buy as early as 14 days after the birth of your grandchild.
- Insurance policies can earn your grandchildren annual tax-free dividends throughout their lifetime from the day you open it. Thus, you can transfer wealth to your grandchildren tax-free.
- Life insurance for grandchildren enables the money to accrue, and therefore your grandchild can borrow money against the insurance if required.
RESP or Registered Education Savings Plans are specially developed to help parents and grandparents save for their child’s education.
As a grandparent, you won’t incur any tax implications when investing in an RESP.
The Canadian government even provides CESG (Canada Education Savings Grant), which is approximately 20% of the overall contribution (maximum of $2,500 annually per grandchild).
Here’s are some facts about RESP contributions:
- You can simply visit a bank, credit union, or other financial establishments to start an RESP fund.
- The Canadian government then matches the money up to a certain percentage (typically 20%) and deposits it into your grandchild’s RESP. The extra fund deposited by the government is known as the Canadian Education and Savings Grant. The amount provided is based on your own contribution.
- The funds are given out by the Canadian government (commonly called educational assistance payments) are taxed. However, because many students have minor to no income, the tax rates won’t be too high.
- The Canadian government has determined a limit of $50,000 per beneficiary from all combined RESPs.
- If your grandchild doesn’t register for an approved post-secondary education program (trade school or college) within 36 years of opening the RESP account, the government can request back the grant funding.
- If the RESP funding isn’t used for educational purposes, penalties and income tax are incurred on investment earnings.
Registered Disability Savings Plans, commonly known as RDSP, are similar to RESPs. It is an excellent scheme in Canada for grandparents qualifying for DTC (Disability Tax Credit).
These investments are not just helpful for educational expenses but can also cover the long-term needs of your grandchildren, even during their retirement days.
Start a savings account (tax-benefit account)
The fundamental method of saving money is opening a bank account.
Children below 18 years of age might not be able to open an independent bank account. However, as a grandparent, you can start investing by opening a bank account (or tax-saving bank account). You can grant them ownership once they reach legal age.
You can educate your grandchild about the various aspects of savings and encourage them to start saving from an early age. Your grandchildren can even use the savings account to deposit any money gained from gifts and other occasions.
Unlike RESP contributions, this fund can be used in the future by your grandchildren for any purpose such as medical emergencies, family planning, wedding, business startup, etc.
Invest in real estate
If your finances are adequate, purchasing a property for your grandchild is a worthwhile investment strategy that fulfills many financial requirements, even a medical crisis.
Real estate is a prosperous industry if traded accurately. However, it is recommended that you utilize the expertise of a financial specialist and perform comprehensive market research before investing in real estate.
Investing in real estate can convert into a future asset for your grandchildren and help them to settle easily in the future. The appreciation value of real estate ensures that you will get factors like inflation covered for your grandchildren, enabling them to be financially secure in an uncertain market.
Even if your grandchild plans to sell the real estate, it can serve as substantial financial support. Your grandchild’s higher education, business startups, and other activities will no longer become a financial burden.
Ensure to have a will for your grandchildren
A will can be defined as a legal document describing how you want your property to be distributed within your family members, organizations, or any third party once you’ve passed away.
Your property includes all your assets having financial or other value (emotional value). Exceptions are jointly owned assets, life insurances having an already specified death beneficiary and pensions.
You can choose to offer specific gifts to individuals legacy donations to trusts and organizations from your property. The most recent version of your will, when executed correctly, should override any older versions or verbal agreements made during your lifetime.
If you want to gift an inheritance (real estate, jewelry, automobile, etc.) to your grandchildren, making a will can be extremely beneficial. A well-drafted will can ensure financial security for your grandchild.
Initially, the process of choosing the right investment strategy for your grandchildren might seem a daunting task. Here is where you need to take the help of experts. With the help of experienced investment professionals, you can make an informed decision and smartly direct your finances to assist future generations.