Family insurance: Covering your kids

Covering your kids

By Special to MoneySense on October 13, 2016
Estimated reading time: 4 minutes

Every parents' guide to buying life insurance for their family

This article is 5 years old. Some details may be outdated.

Sunny Iglezos was happy enough with the limited life insurance she received through work. But when her mother was diagnosed with ovarian cancer—a month before Iglezos gave birth to her first child, Lucas, now three—she decided to buy additional coverage. “The diagnosis heightened our awareness of our own mortality and how quickly things can change,” she says. “We felt the need to make sure everything was in place so our child was protected.” While no one likes to think about worst-case scenarios (especially not when you’re blissed out about the arrival of a baby), life insurance is crucial for parents of young kids, says Lorne Marr, director of new business development at LSM Insurance, an independent brokerage based in Markham, Ont. If something were to happen to you or your partner, having the right insurance could be the most important thing you ever do for your kids. Figuring out what type to get, how much coverage you need and for how long can be overwhelming, but we’ve broken it down. Here’s how to make sure your family is covered.

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Figure out the amount

“The first step in buying life insurance is to decide how much you’ll need,” says Marr. You’ll want to leave enough to care for and educate your kids to ensure their guardians don’t have that added financial pressure. Think about how much it would take to replace your income, cover university or college tuition, pay off your mortgage and car, resolve any other debts and cover your funeral expenses. Use an online calculator or ask your insurance broker to help you figure out the minimum amount required. If that seems too complicated, the general rule is to multiply your gross annual income (before taxes) by 10 to get an idea of how much you’ll need. (You may need more if your child has special needs that require additional care or therapies.) By comparison, a typical workplace plan offers one to two times your annual salary, typically in a lump sum.

Decide on the type

There are two kinds of life insurance available: permanent and term. With a permanent plan, you receive the same amount of coverage for your entire life, regardless of any health issues that come along, but the premiums can be relatively high. For example, says Marr, a 25-year-old woman buying $250,000 of coverage may pay an annual premium of around $1,070. Term insurance, on the other hand, covers you for a predetermined number of years, and the premiums tend to be much lower. That same 25-year-old, for instance, may pay around $165 annually for a term of 20 years, regardless of any health issues. (If you still need coverage once the term is up, though, the premiums can jump quite a lot.) “Generally, new parents are interested in term insurance because it’s less expensive, and they may only want the coverage until their kids are grown,” says Glenn Cooke, an independent life insurance broker and president of LifeInsuranceCanada.com.

Other things to consider

If you’re opting for term insurance, consider things like your children’s ages, your plans for having more kids and the size of your mortgage when choosing how long you want to be covered. “I would normally recommend a 20- or 30-year term for new parents because [the lower premiums] fit well with the mortgage-paying, income-earning, childrearing years of life,” says Cooke. With a typical life insurance policy, your partner or co-parent is the beneficiary and your children are listed as contingent beneficiaries—meaning the kids become the recipients if your partner dies, too. For Iglezos and her husband, buying life insurance was just part of caring for their new babe. “Life insurance gives us a sense of security for the ‘what ifs,’” Iglezos says. “We know we’ve done everything possible to put the resources in place to care for Lucas if we’re no longer there. We haven’t left it to others to pick up the pieces.” With this taken care of, they can focus on the day-to-day important stuff, like playdates and bedtime snuggles.

This story was originally published in Today’s Parent

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