Life Insurance for New Parents in Canada
Life insurance is an essential part of your financial plan to protect your family in the long run.
19 Minute read
Originally published: November 2, 2022
Life Insurance for New Parents in Canada
Life insurance is an essential part of your financial plan to protect your family in the long run.
19 Minute read
Originally published: November 2, 2022
Starting a family is a monumental moment in a person’s life. Protecting your family is now your top priority and in Canada protecting your family means securing your finances. Life insurance for new parents is an essential part of their financial plan in order to protect your children and your spouse. Being that you now have a dependent child or more dependents, there are a lot of things to consider when it comes to protecting your family’s financial strength. Would your children be able to get a post-secondary education if you passed away? Would your spouse be able to take on the full burden of living expenses in the event of your death? Although these are tough questions to ask yourself, it is important to consider and prepare for the unexpected. This blog will explain why life insurance for new parents in Canada is a crucial part of their financial plan.
In this article:
- What is life insurance?
- Types of life insurance
- When should new parents buy life insurance?
- Who should new parents name as their beneficiary?
- Why should new parents have life insurance?
- How can life insurance protect your family?
- How much life insurance coverage should new parents have?
- How much does life insurance for new parents cost?
- Should both parents have life insurance?
- Should a single parent have life insurance?
- Should children have life insurance?
- Other ways to protect your family’s finances
- Frequently Asked Questions (FAQs) about life insurance for new parents
What is life insurance?
The policyholder and a life insurance company enter into a life insurance contract. A life insurance policy promises that the insurer will pay a specific sum to the policyholder’s beneficiaries after the policyholder passes away. This is in exchange for the premiums paid by the policyholder over the course of their lifetime, or over a certain term.
If the life insurance policy is fully underwritten, then the application must accurately disclose specific questions about themselves such as a criminal record, their hazardous hobbies or occupations, as well as any medical issues, in order for the contract to be valid. These term life insurance or permanent life insurance plans will also require an attending physician’s statement (APS) or a medical examination. There are certain types of life insurance that do not require any medical information such as no-medical and guaranteed issue life insurance. Keep in mind that no matter what your lifestyle is, or what your medical condition is, you can definitely attain a life insurance policy.
Types of life insurance
Knowing the different types of life insurance is crucial when looking for coverage. There are many different kinds of life insurance; the two most popular are term life insurance and permanent life insurance. There are other types of life insurance, such as guaranteed and simplified policies, although they are typically more expensive than fully underwritten policies.
Cost of Premiums
Full medical history disclosed.
Limited medical questions. May differ by insurance company.
No medical questions asked.
Visit from nurse or paramedical company
Most often yes.
Sometimes substitued with physicians report.
No vist from nurse or paramedical company.
No vist from nurse or paramedical company.
Speed of approval process
Longest process, may take few days to several weeks.
Typically within a few hours to a few days.
Typically within a couple hours to a couple of days.
Maximum amount of coverage
No specified maximum.
Depends on company, age and health history. Can be up to 1M in coverage.
Depends on company and age. Most often between 25K and 50K maximum.
What is term life insurance?
Being typically the least expensive plan, term life insurance is a sort of life insurance that pays out to your beneficiaries in the event that you pass away during the length of the term. In Canada, the period of their term insurance coverage can be set at 5, 10, 15, 20, 25 or 30 years. After the term has ended, you can renew your policy up to a specific age, but the premiums will rise each time. For instance, your beneficiaries will receive a tax-free payout if you purchase a 10-year term life insurance policy and pass away within those ten years (also called a death benefit).
What is permanent life insurance?
Permanent life insurance, often known as whole life insurance, offers protection for the remainder of your life. Additionally, it provides a tax-free payment to your beneficiaries after you pass. Some plans have the potential to accrue cash value over time. Permanent insurance premiums typically come with a guarantee that they won’t rise after the policy is purchased. Additionally, some permanent insurance policies might only allow you to pay once, then never again. Two other permanent life insurance choices to consider are participating life and universal life. Although permanent life insurance is a fantastic choice, it typically costs more than term life insurance.
What is simplified issue life insurance?
Simplified life insurance is available for both term and permanent life insurance plans. A medical exam is not required for simplified issue insurance plans, however you must answer some health-related questions. In exchange for no medical exam, premiums are often higher than those for fully underwritten life insurance (permanent and term life insurance). Simplified issue life insurance is an ideal choice for people who desire a quicker approval or do not want to have a medical exam. The coverage amounts are smaller and the monthly premiums are greater with simplified plans.
What is no-medical/guaranteed life insurance?
This types of insurance does not call for any medical examinations or questioning. The target market for guaranteed issue life insurance includes elderly individuals or those with major health conditions who do not fit the criteria for underwritten or simplified policy. A lot of insurance companies also offer guaranteed acceptance life insurance with a deferral period of 24 months. Because guaranteed issue insurance is also a sort of permanent life insurance and normally has a $50,000 maximum coverage limit, though some insurers offer less, it has the highest price of the three other alternatives.
When should new parents buy life insurance?
Buying life insurance is a big decision, and the right time to have life insurance can really vary depending on your life. As for new parents, we strongly recommend that you purchase a life insurance policy prior to becoming a parent, but if you purchase life insurance after becoming a parent, that is completely fine. Life insurance for those who have a good health rating, and those who are middle aged and under can find amazing rates for life insurance. Buying life insurance as a young adult is ideal but not right for everyone. Once you do become a parent, then it is a really good idea to get life insurance as soon as possible. Term life insurance is offered in terms so you can decide to only have life insurance coverage for as long as you expect your child to be financially dependent on you and your spouse. This being said, term life insurance is also there for your beneficiaries in the case that you pass during the term of your policy. Therefore, having a term life insurance policy can help your spouse with the financial burden of becoming a single parent. As mentioned earlier, term life insurance is offered in 5-40 year terms so this can be renewed in the future when the term is almost expired, and it can protect your spouse for decades, as well as your child well into their adulthood too.
There is also permanent life insurance which can protect your family for the remainder of your life. These policies do cost more than term life insurance policies but are still affordable. Either of these options are great life insurance types for new parents. There are many things to consider when thinking about the right time to buy life insurance, but just remember, the sooner the better. Becoming a parent is a life changing event and you want to make sure that you child and your spouse has protection from the unpredictable. Thus, depending on your circumstances you might want to have a term life insurance while your child is financially dependent on you and then renew it in the future if you wish. This will ensure that your child and your spouse and other loved ones who you assign as a beneficiary will not be burdened by the financial stress that your death can cause.
Who should new parents name as their beneficiary?
When new parents get life insurance, the most crucial thing to figure out while they are applying for their plan is who they will be naming as their beneficiary. Your beneficiary is the person or persons who will be receiving a payout from your life insurance policy in the event of your death. Typically, most people will name their spouse as their beneficiary, this makes most sense because of the fact that they will be raising your child if you pass.
But what happens if both of you pass? Well this makes things much harder because your child does not have their parents, thus it is important to set up a plan in the case that both you and your spouse pass. You might have to add a contingent beneficiary, which is someone who is the backup beneficiary in the case that your original beneficiary passes away.
Most people would consider making their child the contingent beneficiary but you might want to think this through because there are many laws surrounding the release of money to minors. The age of majority in Canada is 18 or 19 in most provinces, this means that your child might not be able to access the life insurance payout until they reach the age of majority. What you want to do in this case is either create a plan where a loved one who is over the age of majority can take custody of your child and have access to the life insurance payout in the case that you and your spouse pass away. Alternatively you can discuss your options with a life insurance broker which can set up a financial plan that will ensure that your money stays within your family even in the worst case scenario. Please contact us to learn more about setting up the right beneficiary for your life insurance policy.
Why should new parents have life insurance?
Having life insurance as a new parent is absolutely essential. Since you have a family, dependents, debts or other financial obligations, such as a mortgage, or a business, or maybe even just your living expenses, you need to consider if your partner would be able to carry this financial burden if you passed away. Life insurance is one of the most important preventative actions to protect your loved ones from financial difficulties in the case of you dying. A life insurance death benefit can be used for a variety of purposes aside from safeguarding your family from financial instability, which is one of its many benefits. In many cases, this money can be kept for daily expenses, living expenses, savings or used for funeral costs, a mortgage payment, or the education of their children. There are however many things that you should ask yourself before you buy life insurance:
If you answer yes to any of these questions then you need life insurance. These are some of the top reasons why new parents should get life insurance.
Life insurance protects your loved ones
A great way to safeguard your loved ones is through life insurance. When taking into account the burden a family bears after a loved one passes away, it can be both emotionally and financially devastating. If you die without life insurance, there are numerous expenditures that your family may be forced to bear. Take into account these costs: funeral fees and expenses, any outstanding debt (from minor credit card balances to major loans), a mortgage, and how much your family depends on your income.
Your children, a spouse, and your parents or other loved ones can be at risk if you do not get a life insurance policy and if they are reliant on your income. Money cannot remove the emotional toll of your death, but it can assist your family avoid the financial hardship you would have left them in without life insurance. As a result, purchasing life insurance is an excellent idea merely for the peace of mind that it will provide for your loved ones in the event of your passing.
How can life insurance protect your family?
Life insurance can protect your family from the expenses that they might not be able to handle if you were to suddenly pass away. The bottom line is, life insurance is something that can protect your family from the financial burdens that they wouldn’t be able to handle without your income. Consider if your spouse is financially able to handle the rent/mortgage payments alone, consider if they can handle the debt and living expenses you might leave behind, plus the possible post-secondary education costs your child might have in the future. If you think that your spouse or loved ones might struggle to maintain without your income, then this is exactly the main reason to purchase a life insurance policy.
How much life insurance coverage should new parents have?
Finding out how much life insurance you need might seem tough to pinpoint, but luckily this is exactly what life insurance brokers can help you find out. This is something that even you can find out if you do a bit of research into your own financial situation. There are plenty of techniques and methods that can give you insight into how much life insurance you might need based on estimations. First, let’s think about the main things to take into account when thinking about how much life insurance your will need:
Income: When buying life insurance, your income is a crucial factor. Think about your current income and the financial circumstances your family would be in without it.
Mortgage: What portion of your mortgage have you paid off, and what is still owed? Given that a mortgage is the most expensive purchase you will ever make, this is a crucial question. In light of this, you should make sure that the amount of your life insurance coverage takes into account how much of your mortgage is still owed. The best thing to think about is whether your family would be able to pay off the mortgage if you passed away.
Post-secondary education: Finding out how much money your children would need to pay for college or university in the event of your passing is a key factor to take into account if you have children while buying life insurance. The majority of people who enroll in post-secondary education do so as young adults who are unprepared to take on the full financial burden of attending college or university since post-secondary education is expensive. Given this, it’s critical for you to think about how much money your child will require to continue their post-secondary education even in the event of your passing.
Dependants: If you have children who are not financially independent, they are obviously your dependents, but also take into account if you have any other family members. People who are dependent on you should be considered when purchasing life insurance because you want to ensure that they are protected financially in the case of your death.
The DIME formula
The DIME formula makes it simple to calculate the approximate amount of life insurance you might require. With DIME standing for debts, income, mortgage, and education, it takes into account the fundamentals of financial obligations. When determining how much life insurance one needs, the DIME formula, in the photo below, is a fantastic tool in finding your total financial obligation at the moment.
One of the simplest methods to figure out how much life insurance coverage you need is by using this times ten formula. Basically, multiply your annual income by 10. Take an annual income of $50,000 as an example, then multiply it by 10 to get $500,000 ($50,000 X 10 = $500,000). From using the times ten formula, you will need to get $500,000 in life insurance coverage to make sure that your family can continue their quality of living without experiencing financial difficulty for a comfortable amount of time in the case of your passing. For every dependent you have, consider adding an extra $50,000 to $100,000 for each child.
How much does life insurance for new parents cost?
For those who are concerned about the cost of life insurance premiums, life insurance is actually pretty reasonable. When applying for life insurance, you should take into account the factors that life insurance companies consider that will eventually impact the cost of your premiums. Life insurance companies consider:
- Age; the older you are the higher your rates
- Gender; females tend to pay lower premiums on average due to having higher life expectancy
- Criminal record; having a record will lead to higher premiums
- Medical conditions; the more severe your medical condition is, the higher your premiums
- Occupation or Hobby; if you have a dangerous occupation or participate in a dangerous hobby this can lead to higher rates
Another awesome reason to get life insurance if you are a new parent is the fact that rates can be extremely low if you are a non-smoker and are in good health. The average age of people becoming parents in Canada is 30 years old, this being said, this is an excellent age to find a great life insurance policy at affordable prices. Take a look as some of these approximate rates for a 30 year old males and females, non-smokers who are looking for $500,000 in coverage:
Should both parents have life insurance?
Life insurance for new parents is an important decision, and it is ideal if both parents have life insurance coverage. Even if there are differences in how much income you might be earning individually, you are sharing a lifestyle and maintaining a certain lifestyle. This being said, this lifestyle is achieved by both of you and your spouse, therefore it is important that both parents have life insurance. First of all, life is unpredictable and the unexpected can happen to you or your partner. There will undoubtedly be financial stress if anything happens to your partner, that is why it is ideal for both parents to just have a life insurance policy to ensure that your partner and your child are protected from the unexpected. Although a fully underwritten individual life insurance policy is the best and cheapest life insurance that you can get, you and your partner should also consider joint life insurance. Joint life insurance covers two persons under a single life insurance policy. Joint first-to-die and joint last-to-die are the two types of joint life insurance.
Joint first-to-die provides a death benefit when one member of the relationship passes away. If a married couple was affected, this benefit might be used to cover funeral costs or take the place of the deceased partner’s income.
Joint last-to-die only pays a death benefit when both individuals covered pass away. This reward is typically used to settle any debts left behind by the deceased.
Individual fully underwritten life insurance is the best because of the fact that it has the highest coverage amounts, and the cheapest rates, plus you can both have a life insurance policy with your choice of beneficiaries which means that in the event of your death, a larger sum of money is available to your loved ones. This can help down the road as well because if the other partner passes in the future then their beneficiaries will receive a life insurance payout too. This is better than joint life insurance because joint life insurance only provides one payout and doesn’t have as much flexibility as an individual life insurance policy.
Should a single parent have life insurance?
Single parents might find themselves in a tough situation due to the fact that they are raising their children alone. This makes it important that your child is covered in the event of your death. The co-parent should also consider getting life insurance as well, if possible. Being that you might be the only one that your child is dependent on, it is important to have a life insurance policy so that your child does not have financial issues in the event of your death. Life insurance can help protect your estate and make sure that you do not have to worry about the payout going to the wrong person. It is highly recommended that a single parent has a life insurance policy in order to protect their children.
Should children have life insurance?
Life insurance for children is a great idea because of the fact that it can help set your child up to safeguard their finances in the future, but also helps protect you from any financial burden in the event that your child passes away. There are two major options if you want to purchase life insurance for your child: either add them as a rider on your existing policy or get them their own policy. Both will function similarly in that they safeguard your child by providing benefits to the recipient in the event of the unimaginable, albeit they will each offer different benefits and levels of coverage.
Children’s life insurance is a practical financial tool that can be used to pay for funeral expenses should your child pass away, invest in college expenditures, guarantee inexpensive premiums for your child, and more.
You are essentially creating a safety net for your child’s finances when you get life insurance for them. If something bad happened to your child, the cash from the life insurance policy would go to your chosen beneficiary. This quantity of money may be used by the receiver to assist with living expenses or to settle any debts your child may have, such as funeral costs. If you decide to purchase your child their own permanent life insurance policy, you can accrue cash value that they can use to cover future debts.
Other ways to protect your family’s finances
There are plenty of ways to protect your family aside from just your life insurance policy. There are riders that you can attach to your life insurance policy which can help you in the case that you become disabled or become critically ill.
Critical illness insurance
Similar to life insurance, critical illness insurance is a term insurance plan that provides a lump sum payment in the event that you are identified as having a catastrophic illness. You have the freedom to decide how to utilize that one-time payment to cover a variety of expenses while you’re unwell, including medical bills, non-medical costs like lost wages, travel expenses, etc., recovery therapies, and more. The situations that your policy covers, such as a stroke, heart attack, or cancer, will be detailed in your personalized contract.
Cash flow that is flexible enough to cover expenses or lost income
Extended coverage — critical illness insurance pays for expenses that your medical insurance may not cover
Finally, peace of mind in a difficult situation
In the event that an illness or injury prevents you from working for an extended period of time, disability insurance replaces a portion of your income. If you are unable to work because of illness or an accident, it might give you a monthly income that is tax-free to assist you in paying your bills. Protecting your revenue stream is one of the best moves you can make if you depend on a paycheque.
Disability insurance protects you and your family financially in the event of death or disability
Significantly less expensive than whole life insurance policies
Policy terms that can be tailored to your specific requirements
Your rates will never change once you’ve locked in your policy
Death benefit is guaranteed
You’ll have peace of mind knowing your family is safe from financial hardships
Finding the right life insurance policy
A life insurance policy can be purchased from a life insurance company or from a major financial institution. It is strongly recommended that you work with an insurance broker. Our insurance brokers provide award-winning services for free, we will evaluate a needs and wants assessment, and after that, we will try to find out the best life insurance policy for you. Working with a broker allows you to take a look at all of your options, therefore it allows you to decide on which company, which policy and which rates work with you. A life insurance broker is a professional who is licensed and only will work with other professional and established life insurance companies, this is a great way to avoid any life insurance scams. Here are some frequently asked questions about If life insurance worth it in Canada
Frequently Asked Questions about Life Insurance for New Parents
A term life insurance policy is the simplest, purest form of life insurance: You pay a premium for a period of time – typically between 10 and 30 years – and if you die during that time a cash benefit is paid to your family (or anyone else you name as your beneficiary).
The right type of life insurance for you should be decided based on a number of factors. The key difference between whole life insurance and term life insurance is that term coverage only protects you for a limited number of years. Whole life insurance provides lifelong protection, but only if you can keep up with the premium payments charged by life insurance companies for this luxury. The difference in cost can range up to almost 15 times for the same amount of death benefit.
Term life is the better option if you:
- Only want life insurance to cover a short-term need
- Want the most affordable coverage
- Think you might want permanent life insurance but you can’t afford it right now
- Don’t want to use life insurance as a possible investment vehicle
Whole life is the better option if you:
- Can comfortably afford the higher premiums
- Want to leave money for your heirs
- Have a lifelong dependent life a child with disabilities
- Want life insurance that builds guaranteed cash value
Most modern term life insurance policies do not expire until you reach age 95. Even though you may have a 10-year term life policy, your coverage will not end after 10 years. What does end, however, is the “rate guarantee” on that policy.
First, it is important to understand why you were denied life insurance, then you are able to access your next steps, such as: do you look for a different type of insurance plan or could you need to apply to a different company?
If you are looking for a deeper understanding of reasons why you could be denied life insurance, check out our blog about 6 Reasons Why You Were Denied Life Insurance.
Yes! Absolutely you can get life insurance with any health or medical condition, there are certain types of life insurance made just for this, for example, no medical or guaranteed issue life insurance policies, are a great option for you, especially if you have been denied a life insurance policy before.
Interested in learning more? Read our blog Guide to Life Insurance with a Medical Condition.
Term life is designed to cover you for a specified period (say 10, 15 or 20 years) and then end. Because the number of years it covers is limited, it generally costs less than whole life policies. But term life policies typically don’t build cash value. So, you can’t cash out term life insurance.
Is whole life insurance taxable in Canada? Some whole life insurance policies, such as a participating whole life insurance policy, provide tax-free growth while you are alive through premium payments and investments. This cash value component is guaranteed to grow in a tax-advantaged way and it will not decline in value. So long as this money is left to gain in your policy, you will not owe taxes on it.
There are so many reasons for you to get life insurance, the main being that it will protect your loved ones from any financial burdens in the event of your death, you becoming critically ill or becoming disabled. Luckily, life insurance in Canada has great rates and unique plans that can fit your lifestyle and plans that are affordable as well. Another reason to get life insurance is the fact that it can have great riders such as critical illness riders, and disability riders. These riders are important to have because life is unexpected and it is best to be protected in any event.
Simplified issue life insurance will ask health questions and do a full underwriting outside of the traditional medical exam. This means you will need to be in good health in order to qualify for affordable rates. Guaranteed issue life insurance, on the other hand, requires no health questions, underwriting and guarantees approval. This comes at a higher cost than traditional life insurance policies.
Help us find the right life insurance for you
If you’re still thinking about getting life insurance as a new parent, there are many different examples show that most people who have any dependents, debts, assets, or financial liabilities would be better off if they had a life insurance policy to provide them with coverage.
At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to create the best solution for you and your needs. We’ve been providing expert life insurance solutions since 2007, including no medical life insurance, term life insurance, and permanent life insurance, to build the best package to give you the protection you need.
Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, ON, and service clients anywhere in British Columbia and Ontario, including areas such as Kitchener, Toronto, Kelowna and Calgary.
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