If you’re ready to make a financial plan for your family, it’s time to consider how to get the right (best!) protection and balance this with your budget. Consider the whole family, and plan ahead to give yourself flexibility.
Insurance For The Income-Earner(s)
As a starting point, ensure you understand how much coverage is recommended for the income-earner(s) in the family. It sounds pretty straightforward, right?. While any amount of insurance is better than none, do you have enough? If you were no longer living, is there enough insurance for your partner to support the kids and cover monthly expenses? Your insurance needs will be dynamic. Meaning, over time, they will change. You will hopefully owe less on your mortgage 10 years from now. And your kids will be 10 years older (and hopefully 10 years closer to being independent!). Until then, do you have a financial plan in place? Would your partner need to sell the house and move if something happened to you? Having enough life insurance protection is an important starting point.
Plan Insurance For The Primary Caretaker
What about the parent whose primary role is taking care of the kids and doesn’t earn a salary? If your partner works, what would happen if you passed away? If your kids are young and your partner works outside of the house, there would be additional childcare costs in order for your spouse to keep working. Or, they may wish to plan to be able to cut back on the amount of work to be with the kids more. A caretaker is priceless and has significant value within the family, regardless of what the line on their income taxes say.
TIP: In the example provided above, what would happen to the surviving parent that still needed to work? They might want to plan for: costs associated with time off work, additional expenses that will be accrued for additional support for taking care of their children.
What is the difference between mortgage vs life insurance?
Life insurance that you get on your own means that you own the policy (and have all the flexibility). Mortgage insurance that is through the lender is owned by them and cannot be transferred.
What is term life insurance?
A term life insurance insurance policy provides a specific amount of life insurance coverage for a defined number of years. It costs significantly less per month compared to whole life or universal life insurance, which are both types of permanent insurance.
What Are The Benefits of Term Life Insurance?
Term life insurance provides some distinct advantages over other types of coverage:
PROTECTION |
FLEXIBILITY |
BEST VALUE |
| Term insurance is usually the least expensive life insurance option. The cost (paid monthly or annually) is less compared to permanent life insurance and most mortgage insurance protection. | Term insurance is attached to the person(s) and not a bank or financial institution. In many cases, it can also be converted to a different type of insurance product in case your health or financial situation changes. | Term life insurance is paid directly to the beneficiary, instead of a bank or specific institution (for example, the way that mortgage insurance is paid out). The recipient has complete control over how they utilize the death benefit. |
Specify More Than One Beneficiary
You can name pretty much as many beneficiaries as you want onto a life insurance policy. Commonly, a person will list their partner as the main (primary) beneficiaries and their children as the secondary (contingent) beneficiaries. This means that if something happens to your partner, the contingent beneficiaries are automatically next in line to receive the death benefit from your policy.
TIP: You can have more than one primary beneficiary and more than one contingent beneficiary
Name a Trustee
On a life insurance policy, you can name a person to be a trustee for your beneficiary. This person will receive funds, in trust, on behalf of your beneficiary. Naming a trustee provides an additional layer of protection and provision for your named beneficiaries. It means:
Minor beneficiaries will have a designated person(s) that will ensure they receive a standard of care until they are of age to legally receive the balance of the insurance funds being held in trust.
TIP: It’s a good idea to appoint a trustee for a beneficiary on a life insurance policy if someone hasn’t already been named under a Trust Agreement separately.
Something else to consider: Even if your children are of legal age, you might be worried about them receiving a lump sum of money that they might not be fiscally responsible with. Moreso,if they are receiving that life insurance cheque, it’s because they lost a parent. You may wish to talk to your own legal advisor for trust and estate planning. Ask your broker to refer someone if you don’t have this set up already.
Diversify Your Coverage
Diversity in your protection is important. What do we mean by this? Think of insurance like an umbrella: a portfolio of options to cover the financial well-being of your loved ones.
We recommend two things:
LIFE INSURANCE(in case you pass away) |
CRITICAL ILLNESS INSURANCE(in case of a major health event of medical diagnosis) |
The good news is that the risk of a young person dying unexpectedly is quite low. The not-so good news is that injuries and illnesses do also happen. Importantly, an illness or injury can limit your ability to earn income and support your family. It can also create additional financial needs to live with ongoing injuries or diagnoses. Living health benefits – that is, critical illness and disability insurance, offer financial protection in the event of such an injury or illness. Many people check life insurance off their to-do list (still a good thing), but don’t recognize the ways in which financial plans can be in place.
How much do I need?
LIFE INSURANCEConsider 10x your annual income or use an insurance calculator |
CRITICAL ILLNESS INSURANCEConsider 1 – 2 years of your annual income |
Consider Your Kids
To be simple, kids don’t need life insurance. They’re worth the world to us (of course), but realistically, we don’t rely on their income to take care of ourselves. That being said, there are times when certain types of life insurance policies for kids can be a great investment option. For example, policies that build cash value, which can be leveraged to help them buy a house when they’re older. So if you have room in your budget, this is worth learning about. If it’s not, don’t fret.
Plan for Flexibility
Your needs will likely change over time, we know it will happen, we just don’t know what that will look like. The biggest, best thing to do, is get that coverage in place to begin with. It locks in your health and ensures financial protection. It’s helpful to check in periodically though, such as every year or two with your insurance broker to ensure the policies are still meeting your needs. Checking in with your broker doesn’t mean you have to do anything different and upgrade. If you’ve moved, and/or taken a bigger mortgage, it might be worth adjusting your coverage. Maybe you earn more money now and would like to convert a small portion of your policy into permanent coverage. If nothing has changed, then consider a few minutes of your time a trade off for continued peace of mind.
TIP: Not all insurance providers offer the same things! Some have more options to adjust your protection during your policy.