Becoming a new parent certainly brings many things into perspective, including the importance of ensuring that your affairs are in order should the worst happen. You would never want to put your family in a position where they are left penniless and powerless in the event of your passing. That’s why life insurance is so important. Not only does it allow you to protect your loved ones against the worst, but in doing so, it gives you a degree of influence even after you pass away. Life insurance ensures the people or causes you care about most will continue to receive your support.
With that in mind, let’s explore four essential things that every parent needs to know about safeguarding the well-being of their family with the right life insurance coverage.
One of the biggest difficulties facing those exploring their life insurance options in Canada is the fact that insurance terminology can feel impenetrable to outsiders. How can you engage with something when you can’t even understand it?
Thankfully, it isn’t too hard to decode the legalese:
It’s important that both parents have a life insurance policy, not just the breadwinning parent. Stay-at-home parents offer valuable services and contributions that would need to be replaced in the event of their passing (with childcare being the most considerable expense).
If you’ve both made the decision to insure yourselves, as a married couple you may be given the choice between joint or single term insurance policies. Both types of life insurance have their pros and cons.
Joint insurance insures two individuals under a single policy with death benefits paid out when the first partner covered by the policy passes away (or, in the case of last-to-die joint coverage, the insurance pays out only once both insured parties pass away). The coverage is typically split 50/50 between the two participants. While typically more affordable, the consequence is that it only pays a single death benefit, so in some cases the living partner will need to re-apply for a new policy to continue their coverage once the initial payment has been fulfilled.
By contrast, single insurance plans give each partner their own policy, each with its own death benefit payout. These plans are generally more flexible, allowing the policyholders more options than simply splitting benefits equitably. In other words, each policy holder can customize their coverages to meet their respective needs. In the event of a separation or divorce, single policies are also much easier to settle or divide since benefits are not conjoined within the same plan.
There are two main types of life insurance available to you as a new parent: permanent life insurance and term life insurance. Permanent life insurance, as the name suggests, offers permanent coverage and a premium that stays fixed from the day you obtain your plan until your passing.
Term life insurance, in contrast, provides coverage over a term length, usually 10, 20, or 30 years. Upon completion of the term length, you can choose to renew your term, or select another term length. Should you pass away within the term period, your beneficiary will receive your death benefit. Term life insurance premiums tend to be lower than permanent plan options.
Term life insurance tends to be a popular choice for young families and new parents who are looking for affordable coverage while their children are dependent upon their income, debts (such as your mortgage, car payments, or credit card bills) are their highest, and life savings are minimal. By selecting a long enough term, the hope is that upon term completion, your children are financially independent, your spouse has accumulated enough retirement savings to live comfortably, and your collective debt levels are low.
Many term life insurance policies are flexible, so should you decide to switch to permanent coverage mid-way through your term, portions of your existing plan can often be converted over to lifetime coverage.
4. Know How Much Insurance You Need
So, you’ve made the decision to invest in life insurance coverage for your family…but how much do you really need to make sure you are properly covered?
The Canadian government advises that somewhere between seven and ten times your annual salary is an appropriate amount of coverage to financially safeguard your loved ones.1 This ensures that, should anything happen, your family members would have enough support to maintain their lifestyle and cover final expenses and outstanding payments.
The great thing about applying for life insurance coverage as a new parent while you and your family are young is that you’ll benefit from a better rate! Life insurance premiums are priced based on your level of risk as a client; as a younger policy holder, you’re more likely to have a clean bill of health, decreasing your risk and allowing you to access great coverage at an affordable rate!
Life insurance plans differ considerably between providers; take the time to shop around to find a plan that best meets your needs as a new parent and is within your current budget. An insurance provider will help you make sure that the policy that you are considering can safeguard the financial future of your family in the event that the unexpected happens. And, most importantly, a financial safety will provide you with peace of mind, ensuring that your baby is the only thing keeping you up at night!
1. https://itools-ioutils.fcac-acfc.gc.ca/yft-vof/eng/insurance-2-4.aspx
