A Parent's Guide to Life Insurance

If you are a new parent, you may never have even considered the possibility of life insurance before. This is pretty typical for young people. People in their 20’s and 30’s can easily feel invincible. There’s so much life yet to live, and so much youthful health and vitality with which to do it. Then you have a child and it’s like a light switch gets flipped. Suddenly, there is a person whose entire life and future depends on you.

While a life insurance policy may not have the cute factor found in other baby items, making sure that you and your family are covered with adequate insurance coverage is a critical step in making sure your child truly will have everything they need, in case the unexpected were to happen. Because, there are some things a ducky blanket just can’t cover.

If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance.
— Suze Orman

Why new parents need to think about insurance

We know, we know: The advice to get a bunch of policies might start to sound like a broken record to you, but you need to resist the temptation to put it on mute.

Reevaluating your insurance needs should be part of the process of starting a family because your policies and coverage are no longer just for you. Getting the right insurance helps protect your growing family’s financial stability.

No one wants to spend a lot of time thinking about worst-case scenarios (especially when something so exciting and joyous is in the near future.) If that’s how you feel — and it’s making you want to avoid the topic altogether — it might help to understand the vital importance of proper insurance.

It’s something that protects your growing family and helps ensure that the children you love so much will be provided for. So with the goal of peace of mind at the forefront, let’s take a look at what types of insurance new parents should consider to help achieve the goal of protecting and providing for your new addition to the family.

How life insurance works

Life insurance pays money to a beneficiary — a spouse, for example — when the insured person dies. The payout is called a death benefit. You list the beneficiary on the policy when you buy coverage.

Here’s an example of how it could work: You buy a $1 million policy insuring your own life and name your spouse as a beneficiary. If you die while the insurance is in effect, your spouse receives the $1 million payout. The money can support the family in your absence, such as paying the mortgage and funding your child’s college education.

Types of life insurance

There are two main types of life insurance: term life and permanent life.

Term life is temporary. Term life is the most affordable kind of life insurance. You can buy a lot of coverage for a low price. You buy a policy to cover a time period, such as 10, 20 or 30 years. If you die during the term, the policy pays the beneficiary. The coverage stops at the end of the term, and the policy pays nothing if you’re still alive.

Permanent life insurance lasts your entire life. It pays out whether you die next year or in 50 years. Whole life, universal life, variable universal life and indexed universal life are types of permanent life insurance.

These policies are more complex than term life because they include an investment component known as cash value. The cash value account grows slowly, tax-deferred.

Once the cash value is substantial — after, say, 15 to 20 years — you can borrow against it, use it to pay premiums or use it to buy additional coverage. Any outstanding loans against the cash value at the time of death will decrease the payout to the beneficiary.

You can even surrender the policy for the cash value, minus a surrender fee. But that ends the coverage, so the beneficiary would receive no payout upon your death.

Which type of policy to buy

Buy term life if:

  • You want the simplest, most straightforward policy.

  • You want the most affordable coverage.

  • You need coverage for a fixed period. For example: You want to cover the years of raising children or repayment of debts, such as a mortgage.

Buy permanent life if:

  • Someone will count on you financially for the rest of your life.

  • You want a policy that builds cash value.

  • You have a large estate that would be subject to estate taxes when you die.

Term life insurance is sufficient for most families. It’s cheap, so most people who need coverage can buy enough to create a strong safety net. You can compare term life insurance quotes online. Buy a term long enough to cover the years when you’re building savings, paying off debts and have the costs of raising a child.

Ideally, at the end of the term, you won’t need life insurance anymore because the kids are grown and financially independent, your mortgage and other debts are paid off, and you’ve accumulated enough savings for your spouse to live comfortably in retirement.

Permanent life insurance is useful if you have a lifelong financial dependent, such as a child with special needs. If you’re wealthy, you can also use permanent life insurance as an estate planning tool. Your heirs could use the payout to cover federal or state estate taxes, if any will apply.

Think you might need permanent life insurance, but can’t afford it? Most term life policies are convertible to permanent life insurance. You can buy a term life policy and convert portions of it to permanent coverage over time.

Why both parents need life insurance

It’s not just the breadwinner who needs life insurance. Stay-at-home parents should have coverage too, even if they don’t earn income.

A stay-at-home parent provides valuable services, such as child care, that the surviving parent would have to pay to replace. A life insurance payout could also enable the surviving breadwinner to take a few years off work while the family regains footing.

How much life insurance to buy

To figure out how much life insurance to buy, think about your family’s financial needs if you weren’t there to support them. Here are four steps:

  1. Decide how many years of income you’d like a life insurance policy to replace, and multiply your income by that number.

  2. Add other financial obligations, such as debts and college costs for your children.

  3. Include the cost of services you provide that would have to be replaced

  4. Subtract savings and any other life insurance coverage you already have.

Click here for a life insurance calculator takes you through the process and can help you estimate an amount to buy.

Naming beneficiaries

When you buy a policy, you name a beneficiary, such as your spouse, to receive the life insurance money. Don’t name your young children, though, even if you want the money to benefit them. If the beneficiary is a minor when you die, the life insurance company can’t pay the benefit until the court appoints a guardian.

Instead, one option is to set up a life insurance trust to hold money and property for your children and name the trust as the beneficiary. You appoint a trustee, such as your spouse or another adult, to manage the trust according to your instructions. An attorney can help you set up a trust, and the life insurance company can tell you how to word the beneficiary designation.

How life insurance is priced

The annual price depends on the type of policy, the amount of coverage and, if it’s a term life policy, the length of the term. Other factors include:

  • Age: The younger you are the less you pay.

  • Sex: Women generally pay less than men.

  • Health: The healthier you are the less you pay.

  • Smoking habits: Smokers pay more than nonsmokers.

  • Hobbies: People with risky hobbies, such as scuba diving, pay more for coverage.

Life insurance prices vary among companies. You can get term life insurance quotes online, but you’ll want to work with a financial advisor if you’re choosing a permanent life insurance policy.

With life insurance, you’ll know your family will be on solid financial ground if you can’t be there. That might even help you sleep better at night — at least when the baby’s not up.


If you have any questions on how to protect your little ones, feel free to get in contact with me for a free consultation by filling out the form below.

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Mortgage Life Insurance - Better read the small print

I would like to share my thoughts on mortgage life insurances between different financial institutions and insurance companies.

I also recommend you to watch this video from CBC marketplace

I'm a shopper who likes to get deals on goods that I believe will bring value to me, my family or the people I care about. Can you imagine buying insurances and believe that you were covered but are not?

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I share a similar experience with my Future Shop warranty. I am not bashing Future Shop but I'm stating the flaws of their warranty which I was not informed of before purchasing it. I went into Future Shop around September 2010 to purchase a MacBook for my little brother who was entering graphic designs. I was excited and told the sales person to purchase the Apple warranty extension for another 2 years. At that time, he did all the transactions and I didn't read the warranty papers like most buyers. Approximately two later, I brought my laptop to the Apple store to fix keypad on my laptop. Guess what the Apple Genius said? "You don't have a warranty for this laptop!"

I was lucky that I kept all my original receipts of my purchases. After careful review of the paperwork, it turns out that I had a Future Shop warranty, not Apple Care (which I specifically asked for!) The reason why they wouldn't fix my problem is that "it is cosmetic and does not affect the functionality of the laptop". Even if they were to fix it, they would have to ship it to their central repair centre and it would take up to two weeks to get my laptop back. Can you believe it? However at Apple, if I had the warranty with them, they told me they would've fixed it on site.  I brought my frustration and disappointment to head office and management of Future Shop. No one responded to me for weeks. It wasn't until I reached them through Twitter that they then paid attention to me. Their solution was to pay me back what I paid for the warranty.

What good is having my warranty money when my laptop breaks down before 3 years? I paid for an insurance and perceived that I had coverage. It sucks and is downright horrifying when the rug gets pulled under you. 

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Life insurance should provide an accurate answer about covering you or not. Why should you pay for something if you are not covered? As a consumer, you should know exactly what you are paying for, exactly what you are covered so you can have true peace of mind.

What this event taught me is to always learn as much as you can about what you are purchasing and learn to ask the right questions. When in doubt, speak with a professional in the field. 

What does my clients ask me? Part 1

Today I would like to share common questions asked during my initial meetings with my clients, also known as frequently asked questions (FAQs).

WHAT IS AN INSURANCE BROKER?

An Insurance Broker is a person that has permission to seek insurance quotations for an insured (client) or prospective client. A broker is not an insurance company employee. As a representative for the insured, brokers will approach several insurance companies in an attempt to provide quotations and coverage to adequately insure the client's exposures.

An Insurance Agent is a person who has entered into an 'agency contract' with an insurance company for the purpose of selling insurance for that one company. An agent is not an employee of the insurance company, but rather an independent contractor. The agent, unlike a broker, has the authority to bind coverage (legally obligate the insurance company to provide coverage according to the terms and conditions as bound).

WHAT SORT OF EDUCATION DO YOU NEED TO BECOME ONE?

You will need to complete RIBO Level 1 (Acting under supervision of a Principal Broker like Brokerstrust) which I am allowed to promote Home, Auto & Commercial liabilities. For life, critical, disability, investments, group investments & travel insurances; I needed to complete my LLQP & Mutual Fund licenses. After 2 years as a sponsored agent, I became non-sponsored which allowed me to work with Managing General Agent (MGA) like Bridgeforce Financial to provide products and services from different insurers.

WHAT DO YOU SEE YOURSELF IN 5 YEARS?

Given the last 5 years of experience in this field, I see myself growing into an independent Registered Insurance Broker in Ontario (Level 2), which allows me to build my own brokerage. I want to have my own team of specialists to help provide to current, existing and new clients on many areas of speciality like wealth management & estate planning, tax planning, financing (mortgages) and Risk Management. There is a lot of room to grow but it takes a lot of planning and time to build a solid foundation which I see myself building in the next 5 years.

HOW DO YOU GET PAID?

First, I am self-employed which means my income is 100% Commission and trailers. I get paid when a client accepts my proposal on the products and services like Auto & Home insurances. I get trailers based on my current asset base which are based on the total value of all my current & existing clients. By getting this type of commission, I do my best to service and maintain my clientele.

BEING A BROKER, MAKES YOU A SALES PERSON?

Yes and No! A self-employed is like running their own business on a day-to-day business. Sales for any company, corporation or small businesses are crucial to bring in revenue. However Insurance broker does not only promote products, they are based on a servicing market which requires them to build relationship, research & analysing, and recommending solutions. We have a specific guidelines to follow as we are regulated. 

Being a broker, isn't about selling one particular product and let you leave at no given notice. That is not the way how I run my business. In our industry, maintaining clients allows you to have trailer fees which is residual income. I can confirm and will inform you that it's in my best interest to keep you as a client which means servicing you as you grow. I do not want to treat my business like a fast-food restaurant because I prefer quality over quantity. 

I have answered to all the questions with my honest opinions. If you have any questions or concerns, please kindly send me a quick message. 

 

Get the most out of your Savings!

We all save money for rainy days because we understand how it feels to have a bad day with unexpected costs like:

  • Car repairs
  • Pet eating the wrong stuff (Vet bills can mount up hundreds)
  • Injuries and Accidents i.e. Broken Leg
  • Natural Disasters hits i.e. Flood, Severe snow storms, black-outs
  • Losing your job

but we also save for the good days like:

  • Unplanned trips, vacations or day at the spa
  • Special family events
  • New gadgets (laptop or game console) and personal items like Michael Kors bag 
  • Weddings (Yes, the invites keeps coming)

Where can I put this money? Should I invest it? If so, how aggressive? Do I pay taxes?

Everyone has different goals in mind but let's assume that you are saving up as an emergency fund for the listed events because we all know how it feels to be stuck with debt if we didn't save. 

I am recommending individuals who plan to use their TFSA not to invest aggressively due to the short-term nature of the account. You can invest it in Guaranteed Income investments like GICs, Bonds and etc to ensure little risk to your principal of your account.

Life will be hard if you don't plan for these unexpected events. By saving, it helps eliminate unnecessary stress and you will feel confident to take on future problems.

Tax-free Savings Account (TFSA) is very ideal for current emergency funds. 

FACTS OF TFSA:

  • As of January 1, 2013, Canadian residents, age 18 and older, can contribute up to $5,500 annually to a TFSA. This is an increase from the annual contribution limit of $5,000 for 2009 through 2012 and reflects indexation to inflation. (Therefore, you may be eligible up to $31,000 limit for TFSA)
  • Investment income earned in a TFSA is tax-free.
  • Withdrawals from a TFSA are tax-free.
  • Unused TFSA contribution room is carried forward and accumulates in future years.
  • Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
  • Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.
  • Contributions are not tax-deductible.
  • Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
  • Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.

For more information on TFSA, feel free to contact Katherine Le.

To look into TFSA details, visit CRA Website.