Other Children's Policies

There is another category of policies especially designed for children. These are deferred assurances and are known by names such as "junior policies" or "child's assurance".

The parent takes out an endowment policy on his or her own life to mature when the child is 18 or some other specified age. At this age the parent then has the option of taking the cash sum provided by the policy (on the child's behalf), or the child may continue to pay premiums at the same or a higher rate for a with-profit endowment or whole-life policy, regardless of the state of his or her health.

If the parent dies before the option age is reached, premiums cease until the child reaches the appropriate age when the options are still available.

An income benefit may also be paid during this period. Since the policy is, at the outset, on the parent's own life, tax relief is available on the premiums, and when the child takes over the policy it, too, will obtain tax relief within the usual limits.

If the child opts to continue the policy, premiums continue at the same or higher rate regardless of what type of policy is chosen, but the sum assured will vary according to the type of policy and its term. What is happening is that the accumulated sum is being used to augment the benefits on whatever policy is chosen, so that the total sum assured provided for the annual premium will be far higher than that under the company's normal scales.

Normally, the premium rates (and hence the benefits) at the option date are guaranteed when the policy is first taken out.


Learn More About Other Children's Policies

More on Education

Often a child's grandparents may be major contributors to a school fee plan, and here capital transfer tax can be a problem. The simplest method, where the grandparents wish to give an annual sum, is for them to use the £12,000 p.a. individual exemption from CTT to pass on an annual sum to the child's parents.

They in turn can use it to fund a series of policies as described in Example 11. If the period until schooling begins is shorter than that shown there, and endowment policies cannot be used, then the parents should avoid investing any of their own money on the child's behalf,... see: More on Education


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