Insurance for Children founder counters former Allianz Life CEO's comments on kids' coverage
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There are some important differences in life insurance policies in the US and Canada, which are especially pronounced when it comes to coverage for children. This disparity was highlighted in a recent interview with Forbes by former chairman and CEO of Allianz Life North America, Bob MacDonald.
“The only valid rationale for life insurance is to cover any economic loss that may occur in the event of the death of the insured,” said MacDonald, who added: “Parents and grandparents will certainly suffer an emotional loss at the rare occurrence of the death of a child, but rarely will this create a debilitating economic loss for the parents or family.”
MacDonald went on to explain that children’s life insurance was an ineffective method of saving for the future, given that juvenile policies typically don’t exceed US$10,000 in value. That means cash accumulated in a policy by age 18 would generally be no more than US$1,000.
While that may be the case in the United States, things are somewhat different in Canada, argues Insurance for Children founder Michael Lampel.
“Term is never a good plan for a baby, in that it only pays out to the parents if the child passes away before the plan expires or needs to be renewed,” he says.” Then there is universal, which is rent to own, where parents and child will have to pay premiums until the child is 100 years old before it's considered paid for. Finally there is whole life insurance.”
The difference here is that whole life insurance in Canada is divided into participating and non-participating, which isn’t the case in the US. It is why Lampel established his company and its Child Plan participating whole life product.
“With a non-participating whole life plan, there is a little bit of cash left over from the premium each month and the insurance company pays market interest rates on the extra cash. Given the very low interest rates, this plan will never grow in value for the child.”
He continues: “With a participating whole-life plan, the child will receive a tax-free annual dividend for the rest of their life from the insurance company. They can access the cash value for education, a down payment on a home or for any financial need and the plan is completely funded after 20 years.”
