Teach students to budget with a term certain annuity
Learn how you can use a term certain annuity to help pay for a child’s education.
Updated 
2 min. read
“How can I support my kids financially while also teaching them to become financially independent?”
It’s a question that many parents ask themselves, especially as their children grow up and prepare to head off into the world on their own. Parents want to help, but they don’t want that help to prevent their kids from standing on their own two feet. There’s an often-overlooked financial planning tool that could help. And with today’s higher interest rates, it might be more attractive than you think.
What is a term certain annuity?
Many people think of annuities as retirement products, but a term certain annuity is different. With a term certain annuity, you pay a premium and then receive a fully guaranteed monthly payment stream for a specified number of years (the “term”). The payment, which is usually monthly but can also be annual, semi-annual or quarterly, consists of both principal and interest. It’s a little bit like a GIC, except it pays you throughout the term instead of just at the end of the term. The monthly payments are fully guaranteed and never change1 during the term.
Why would a term certain annuity be helpful for students?
These days, it’s common for parents to provide some amount of financial support to their kids while they’re in school.
Instead of providing financial support to their children in lump sums and at random intervals, a parent could instead purchase a term certain annuity that provides a monthly income stream to the student for the duration of their studies. For example, a parent could purchase a 4-year term certain annuity to coincide with the length of a typical undergraduate degree program. This income stream would help the parent make an investment in their child’s future while providing the student with an opportunity to learn a critical life skill: budgeting.
By providing the student with a fixed monthly income, parents will be helping the young adult learn about the need to manage expenses within an available income amount, in preparation for a time when the student graduates and enters the workforce. The term certain annuity will have provided financial support that will then be replaced by the child’s own salary or wages, and the concept of managing spending within an available budget will already have been learned.
A term certain annuity might accomplish two goals at the same time – it’s the gift of supporting a child’s education, while also putting them on the path to financial independence. If you’re interested in this approach, ask your advisor to provide you with a quote and help you determine if this strategy can work for you.
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Information contained in this article is for illustrative purposes and is subject to change without notice. The information in this publication is intended as a summary of our products and/or services. Please consult the appropriate policy contract for details on the terms, conditions, benefits, guarantees, exclusions, and limitations. The actual policy issued governs. Each policyholder’s financial circumstances are unique and they must obtain and rely upon independent tax, accounting, legal and other advice concerning the structure of their insurance, as they deem appropriate for their particular circumstances. BMO Life Assurance Company does not provide any such advice to the policyholder or to the insurance advisor.
Footnotes
Footnote 1 details Unless the parent has selected an indexed annuity, in which case the payment could increase annually with indexing at a certain rate.