What Am I Doing Wrong? 7 Common Mistakes Parents Make With Their Life Insurance

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Danika Dickson

If you already have a life insurance policy in place, give yourself a high five! But keep reading because there are a number of common mistakes that parents make when setting up their family insurance plan. And, if you can identify with any of these, we can suggest some quick fixes!


1. Not Enough Insurance For The Income-Earner(s)​


This is pretty straightforward. While any amount of insurance is better than none, do you have enough to support your spouse and/or depends? 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. But 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?

Consider these two scenarios:

A married couple with 2 kids and a mortgage: one partner works away from the home, the other is raising the young children. A life policy should consider enough coverage for the surviving parent to remain living in the home, and support the standard of living for the family.

Common law partners with no kids, although they have two dog-children that are rescue pets; they would like to leave a donation to the local pet shelter as part of their will. A life insurance policy doesn’t need to support any dependent children until they are of legal age, but they likely want to leave something for their surviving partner. In addition to other final expenses (i.e. funeral planning, paying off any debts), they might want to include an additional amount designated to the charity of their choice.

TIP: Use a life insurance calculator to estimate how much insurance is recommended. You can always plan backwards from this to fit within your budget.

2. Too Much Insurance 

Said no one ever. Truth: We’ve never (ever, ever) had someone say “This insurance cheque is too large”. I don’t expect we will ever encounter this in our careers. However, too much of the wrong kind of insurance (that doesn’t align with your needs) is a mistake that some parents make. For example, permanent insurance might sound great, initially. However, a big fancy house and large yard might sound great too, but that doesn’t mean you can afford it. Insurance should also fit your lifestyle and payments need to be within your means. If your kids are young and your mortgage is high, then make sure the insurance select fits where you are in life.  

TIP: Term insurance is significantly lower than permanent insurance. Many term products include provisions within the policy so you can convert a portion to permanent at a later time. This gives you flexibility down the road, even if your health changes. It also means you have the most coverage, when your family is young and needs it the most.

3. No Insurance For The Primary Caretaker

If your primary role is taking care of the kids while 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. In addition, it might be important for them to be able to take time off work to grieve during the initial period. A person 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.

4. Only One Type of Coverage

Diversity in your protection is important. Think of insurance like an umbrella: a portfolio of options to cover the financial well-being of your loved ones. 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.

TIP: Consider 1 to 2 years of income as a general guide for how much critical illness a family may want.

NOT-SO-FUN FACT: Critical illness costs more per pay-out-dollar (benefit) than life insurance because you are more likely to suffer from cancer, heart attack or stroke and LIVE (a good thing) than to die because of that.


5. Not Naming 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 that 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.


6. Oops, Don’t Forget Your Second Child…

New baby? new life insurance policy. Give yourself a high five. 

Second baby? don’t forget to add their name as a beneficiary to the policy as well! Sleep deprivation and jokes aside, remember to add the names of the rest of your kiddos to the list of beneficiaries. It’s something quick and easy that your insurance broker will do for you and will not cost any money.

YOU’RE NOT THE ONLY ONE: Not a tip, but some commiseration: this happens enough to make this list. So if you can relate to this, there is no guilt intended! Onwards and upwards and get that name added on 😊

7. Set and Forget…

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: When you take out your policy, set a date in a year or two with your broker. As the date gets closer, you can always adjust the day/time based on your current availability. If all else fails and you completely forget, your calendar notification will pop up in a few years.

There is no cost to having an insurance broker review your current coverage and make recommendations. You will know more and understand all your options, and can make an informed choice about what, if anything, you wish to change.

If you already have a life insurance policy in place, give yourself a high five! But keep reading because there are a number of common mistakes that parents make when setting up their family insurance plan. And, if you can identify with any of these, we can suggest some quick fixes!

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