Life insurance: Is it necessary to insure your children, or should you prioritize coverage for yourself and your spouse?
When it comes to protecting your family, questions about life insurance naturally arise. Should you take out insurance for your children, or is it wiser to prioritize coverage for the parents? This is a common dilemma for many Quebec and Canadian households. In this article, we help you better understand the different options so you can make informed decisions tailored to your family’s situation.
Insuring Your Children: Is It Really Necessary?
Taking out life insurance for a child may seem unusual at first, especially since a child does not have an income to protect. However, some parents choose to insure their children as a preventive measure.
Why Do Some Parents Do It?
Prevention in Case of Serious Illnesses: Many parents choose to take out life insurance while their children are still young and healthy. This ensures that, even if the child develops an illness in the future, they will always be covered. As one family explained, their child was diagnosed with a chronic illness at 15 years old, and fortunately, thanks to insurance taken out earlier, they were able to maintain this coverage without any additional medical examination.
An Inheritance for the Future:
Some parents see life insurance as a long-term gift for their children. By paying for a few years, they provide financial security for the future. For example, one family chose to pay for insurance for 10 years so that their children would be covered for life, even when they have children of their own. It’s a preventive measure that can have a significant impact on their future.
A Question of Priority: However, many parents believe it makes more sense to prioritize life insurance for adults before considering coverage for children. As some say, “Losing a child is above all an immense emotional pain. Financially, it’s one less expense, and income protection insurance would be more necessary to cover lost wages during the grieving period.” Therefore, it is often recommended to see child life insurance as a secondary priority, especially if the budget is limited.
Why Prioritize Life Insurance for Parents?
For most families, the priority is to ensure that the adults are well protected, as they are the ones providing the necessary income for daily life. In the event of a parent’s death, the financial impact can be devastating, making life insurance essential for the family’s stability.
The Benefits of Life Insurance for Adults
Financial Security: When a parent passes away, life insurance helps maintain the family’s standard of living. For example, a couple who each took out a $500,000 term life insurance policy explains that this amount would allow them to pay off their mortgage in the event of death, preventing the need to sell their home. For them, ensuring their mortgage long-term is essential to protecting their children.
Covering Immediate Expenses and Grieving Costs: Another family mentions that their term life insurance would give them a year of financial relief to “get back on their feet” in case of death, covering daily expenses and providing time to recover emotionally.
How Much Should You Pay for Life Insurance?
The cost of life insurance depends on several factors, including family income, expenses, and long-term needs.
Income and Expenses: It is generally recommended to take out coverage equivalent to 5 to 10 times your annual income. For example, a couple with dependent children is often advised to choose a term life insurance policy covering the 20 years during which their children rely on them financially.
Choosing Term Life Insurance for Parents: Term life insurance is often more affordable and can be taken out to cover a specific period, such as until the children become financially independent. For example, one family took out a 20-year term policy with payments of $60 per month to cover two adults and five children.
Costs can vary depending on the company, so it’s important to carefully compare offers before making a decision. A good advisor should take the time to thoroughly assess your family situation to propose the best product that suits your needs and budget.
Alternatives to Life Insurance for Children: Investing in Their Future
If insuring your children doesn’t seem like a priority, there are other ways to ensure their financial security in the future, such as investing in a Registered Education Savings Plan (RESP). This type of investment allows you to take advantage of government grants for education and can provide a better return on investment in the long run.
Others prefer to opt for critical illness insurance, which may be a more suitable option to protect children against costly illnesses. This type of insurance, often with premium refunds after a set period, offers more targeted protection against potential risks.
Can You Cancel a Life Insurance Policy If You Change Your Mind?
Sometimes, you may realize that the insurance policy you’ve taken out doesn’t meet your needs, especially after a confusing discussion with an advisor. It’s important to know that most insurance companies offer a “free look” period of 10 to 30 days, during which you can cancel the policy without penalty. If your financial situation changes or if you find a more suitable product, you can always reassess and make adjustments.
Should You Insure the Entire Family?
Insuring every family member may seem logical, but it really depends on the household’s financial priorities. Some parents believe that having a small coverage for children, such as insurance for funeral expenses, can ease the burden in case of a loss. “We took out $25,000 insurance for each child, just enough to cover the funeral costs and give us some time to recover,” explains one family.
It’s important to understand that life insurance should be tailored to the needs of each household. An experienced advisor can guide you through this process based on your goals and budget.
Conclusion: Make Informed Decisions for Your Family's Financial Security
In the end, life insurance is an important form of protection, but it’s essential to carefully assess your needs. Prioritizing insurance for parents, who generate the household income, is often the first logical step, especially in a context where the financial impact of a death or disability can be enormous for a family. Once this protection is in place, if the budget allows, you can explore options to insure children and ensure their long-term future.
It is advisable to consult a financial advisor who can propose tailored solutions and answer all your questions. Don’t hesitate to ask questions and regularly reassess your needs. Every family is unique, and it’s important to find the balance between protection and budget.
Take the time to discuss it with a professional and understand the solutions that best suit your family to ensure peace of mind in the long term.