A lot of Parents have a concern about sufficiency of Funding of Education and think that RESP portfolio might not be just enough to fund the Child’s Education.Especially when the Child wants to go to a Medical,Dental or a Law School. The cost of Education in these streams are really high.Even if the parents maximize the RESP contribution room still there is no way the funds will be sufficient to fund the Education.Fortunately there are some more plans and products available for parents( subscribers). A few of them are listed below.
- Take a Limited Pay Dividend Based Life Insurance Policy which can generate significant Cash Values and that can be used towards Post Secondary Education.
- Open an Investment Account(In trust) and start monthly contribution.
- Take an investment Loan for a Longer amortization period and pay off the loan by the time Child goes to the Post Secondary School
Lets consider advantages and disadvantages of these options
Advantages of Life Insurance on a child
- Life Insurance on a child is a very good tool to fund the child’s Education as Cash values inside the Policy can be withdrawn almost TAX FREE.
- In case the Plan Owner does not need funds for Post Secondary Education the Policy gets Paid Up and the Child will have a Paid up Life Insurance Policy which has increasing Cash Value and increasing Death Benefit.
- The Child can take a Policy Loan and use the money at his/her discretion and not restricted to us the money towards Post Secondary Education. Also the Policy will be in force until the interest only portion of the Loan being paid.
Disadvantages of Life Insurance on a child
- The Cash Values in the Life Insurance Policy are very low in the initial years.
- If the plan owner wants to stop or terminate the plan he/she might loose significant amount of paid premiums.
In Trust Investment Account
Advantage
- It can be opened with any Major Financial Institution( Bank,Insurance Co,Mutual Fund Dealer).Plans are fully Flexible and can be stopped or terminated at any point of time.
Disadvantages
- The Plan holder will experience a high degree of volatility inside the Portfolio( depending on Market Conditions)
- Dealing with one Financial Institution will restrict the plan owner choice of Investment selection(Choose your Financial Advisor wisely)
- Investment selection plays a key factor in the growth of the Portfolio( Choose your Financial Advisor wisely)
Investment Loan or Leverage
Advantages
- The Investement Portfolio can grow significantly more than monthly Contribution Plan.
- The interest paid on Investment Loan is Tax Deductible and that gives a huge tax advantage to the Plan Owner
Disadvantages
- Once the Investment Loan is set up the plan owner has to make monthly payments. In case of uneven cash flow the plan owner does not have flexibility to stop or terminate the plan.
- In case of Negative Movement in Capital Markets the plan owner will experience volatility and might not be able to handle it.
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