Additional Methods to Use when Saving for a Child's Post Secondary Education

Education costs in Canada are rising and many clients look at RESP’s and additional ways to help pay for it all. RESP’s, government grants, scholarships, life insurance and non registered savings in segregated funds and student summer employment go a long way to raising the needed funds.

University costs have risen in the last 40 years significantly. When I attended, Queen’s University here in Kingston, tuition, housing, meals, books, personal items and travel home to Toronto during the holidays the cost was approximately $5,000.00. When my two children attended University 5 to 10 years ago the cost at that time was approximately $16,000.00 per year per child.

Full time students in Canada paid an average of $16,000.00 for post secondary schooling in 2014-2015 according to a recent article in “The Insurance and Investment Journal”. Over time these costs are predicted to rise to $126,690.00 for a four year program if students live away from home in 2035 which is only 19 years from now.

One of the traditional education savings vehicles has been RESP’s which currently has a lifetime deposit limit of $50,000.000 per child. Deposits to RESP’s are not income tax deductible however the deposits receive a government grant of 20% and the growth of the investment is tax sheltered.

Another product that can help children pay for their education or help with a future home purchase or be part of their personal retirement plan is a “Participating whole life insurance” policy. This insurance product has been available in Canada for more than 150 years. Participating whole life plans combine increasing guaranteed cash values over time and tax free annual dividends credited to the total cash value of the life insurance policy. A parent or grandparent can be the policy owner with the child being the insured. At young ages the cost of insurance is very low and the cash value increase is significant over time.

Participating policies benefit from the profits of the life insurance companies and the dividend return has been 5-6% for many of the major life insurance companies in Canada. Policies purchased for young children have the capability of being fully funded in 15 – 20 years. The cash value in the policy can be available for education costs when the child is in skills training, college or university. In addition to the availability of funds to contribute to a child or grandchild’s education, participating whole life policies can be a great financial asset when your child or grandchild is negotiating a mortgage on their first home, generating an emergency fund for ready cash or creating another source of income for their retirement. The long term tax sheltered growth of a life insurance policy is significant and should never be over looked!