Can you set up an Infinite Banking policy for your child?
Can you set up an Infinite Banking policy for your child?
The short answer is "Yes" and here at Safe Pacific, we call these types of policies Million Dollar Baby policies. Many Canadian parents and grandparents set up these Million Dollar Baby life insurance policies for their kids and grandkids.
Watch 5:32 min Summary Video
Today’s blog is all about setting up your child with an Infinite Banking policy. We have gotten this question from clients, and we see a lot of people looking for it online.
The short answer is yes, now let’s talk about why you would do this and how.
So how would you do this? Well, in simplest terms, you get a Participating Whole Life Insurance policy, which builds a cash value inside.
You as the policy owner pay the premiums which are invested and earn dividends which are reinvested into the policy to buy more insurance.
Over time, the cash value of the policy grows, and the policyholder can access the cash values through policy loans.
You can also access the cash values through withdrawals, but we generally don’t recommend this.
Now what are some of the reasons you would do this?
1 – Financial Protection
The major benefit of doing this for your child is the financial protection provided, as by purchasing the policy for your child, you have ensured their insurability regardless of any changes to their health. Which means that they will be covered for their life, which provides financial protection for their family and beneficiaries.
2 – Cash Value Accumulation
The accumulated cash value within a whole life insurance policy increases over time, offering your child a financial resource that can be utilized in the future for a multitude of reasons, including covering university expenses, starting a business, or buying a home.
3 – Tax Advantages
Just like with adult policies, whole life insurance policies for children offer tax advantages, including tax-deferred growth, tax-free withdrawals and policy loans up to the adjusted cost basis and a tax-free death benefit.
4 – Financial Education
The early exposure to financial concepts can help your child become better with their money and more financially enlightened. Setting up an Infinite Banking policy for your child can be a great opportunity to teach them about personal finance, savings, and the importance of long-term planning.
5 – Legacy Planning
By instituting a policy for your child, you can establish a lasting financial legacy that will benefit the many generations to come. The death benefit from the policy can be utilized to offer financial assistance to your child's family or to contribute to a trust or even a charity.
Something important to note – there are 3 parties to every life insurance contract.
You have the policy owner – this is the person that pays the premiums and has all of the control over the policy. Only they can make any changes, withdrawals, take loans etc.
Then there is the life insured – in this case it would be your child. This is the person that if something happens to them, the life insurance pays out.
Then you have the beneficiaries – this is if the life insured person passes away, the life insurance would pay out to the beneficiaries.
Why do I make this distinction of the 3 parties to the contract – well, you as the parent or grandparent and the policy owner have complete control of the policy. Your child doesn’t have any control of the policy and can’t take loans, withdrawals or make any changes no matter how old they are. A lot of people like having this control.
Over time when your child is older and more financially responsible, you can transfer ownership of the policy to them in a tax-free way which is like giving them a gift of whatever the cash values amount is. This can be at any age. You can also set them up as a “contingent owner” so they would automatically receive the policy if you pass away before transferring it to them.
Kid policies are great. I have them on my kids. Many of my family members have these policies on their kids. My business partner at Safe Pacific, Robert has them on his kids. We do this ourselves, we don’t just make videos on the internet telling you to do something we don’t do ourselves.
That’s all for today’s video to help us please like, comment, and subscribe.
If you want to set up an Infinite Banking Policy for you or your child, we’ve been doing this for over ten years, so we have tons of experience with the concept.
Next Steps:
Whether you're a parent or grandparent, we’ll show you exactly how the Infinite Banking Concept for children could work based on your family's budget and goals.
We’ll walk you through how it grows, how to access the funds and how to structure it to create long-term generational wealth.
Let’s explore what this could look like for your family — no pressure, no obligation. Just a conversation to help you make an informed decision.
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