Life Insurance for Parents in Canada: What You Need to Know

The insured is the individual who takes out the life insurance policy and whose death would trigger a death benefit payout from the insurance company. The benefits would cover funeral arrangements and debt repayments and add to the household’s new total income.

Life insurance for parents comes in all shapes and sizes, each with a different monthly cost depending on your and your significant other’s work arrangement and earnings. Insurance costs also hinge on coverage level and how you file for insurance, whether with a joint policy or as an individual. Each of these factors also affects the amount of the death benefit when that point arrives.

The beneficiaries accept the death benefit after the insured passes away. They usually consist of the spouse and children, the children being the co-beneficiaries. However, beneficiaries could be anyone, from the deceased’s parents to a trusted friend or organization, that the insured claims.

If your sole beneficiaries are underage, their benefits go into a trust upon your death. However, adult children would receive the benefits immediately.

Just as it’s best to purchase health insurance before health issues become a concern, consider life insurance that’ll benefit your family long before you or your spouse become pregnant. Some people purchase life insurance up to a decade before having children, but others who find themselves with an impromptu pregnancy should look into insurance no later than a few weeks into the first trimester.

Since complications may arise further into the pregnancy, ensure that medical complications are at a minimum to secure a lower insurance rate by applying for insurance as early as possible.

Similarly, when planning for surrogacy or adoption, apply for insurance coverage before a baby or child enters your home. Insurance companies suggest doing so during the application process for obtaining a child so that insurance coverage takes effect before they enter your home.

Term life insurance is the most popular life insurance for parents since it allows children to receive coverage as beneficiaries until they’re of legal age and become financially independent. Usually, this means opting for a 20-year or 30-year term life insurance policy rather than permanent life insurance.

This is the most straightforward life insurance type. As long as you pay your monthly premium that the insurance bases on your health and age, your beneficiaries would receive death benefits if you should die before the term is over. Otherwise, if you outlive your term life insurance, you won’t receive a payout unless you have return-of-premium life insurance that reimburses your premium payments.

Permanent or whole life insurance is more complicated than term life insurance and comes with a higher premium since the company guarantees you a payout. However, it covers you until your demise despite the longevity of your lifetime. Because your coverage has no time limit, your spouse or children would receive benefits at any age, making it a perfect choice for any of the following situations: 

• You have a child with a disability or special needs that make them permanently dependent.
• You want to cover your children despite their financial standing and age.
• You want to build cash value or increase your family’s wealth over time.

Unlike single parents, couples can choose whether to apply for life insurance individually or jointly. Many choose individual life insurance if they’re the sole provider for their family. That means their spouse is a housemate or stay-at-home parent who cares for the home and children but brings in a lesser income.

Unfortunately, many households believe the unemployed parent doesn’t need life insurance. Although they may not receive an income, they should still have a life insurance policy because their responsibilities include driving, babysitting, cooking, and cleaning. If something should happen to them, the surviving parent would need to pay someone else to provide these services, which could add up to $230,000 annually in Canada. This would lead to financial hardships.  

Still, you may consider a separate policy or combined life insurance that allows both individuals to have the same insurer under different policies. Either option is best if one of you does not receive a physical income or has a different income level since distinct lifestyles or occupations lead to different coverage amounts.

However, if you and your partner qualify for joint life insurance, choose between joint-first-to-die and joint-last-to-die policies. Both policies are cheaper than combined or separate policies and provide one term, premium, and coverage amount for both individuals. Premiums, though, are more expensive since two people are under the policy.

Joint-First-to-Die

Joint-first-to-die policies only require one partner to die before paying out but automatically terminate within 30 days after this incident. If you want to continue your coverage, you must allow the insurance company to reinsure you within that time frame. You may also need a medical checkup to receive further coverage.

Joint-Last-to-Die

Joint-last-to-die policies require both policy-holding individuals to die before the beneficiaries receive death benefits. If one policyholder passes, the surviving insured individual must continue to pay the monthly premium until their demise. Only then do the beneficiaries receive the insurance payout.  

However, if you have a joint-last-to-die term policy and only one of the insured passes within the policy’s timeframe, the insurance does not pay out. If you have a 10-, 20-, or 30-year term life insurance policy, both of the insured must die within the respective time or else the policy cancels without paying the benefits.  

Insurance companies do not limit joint life insurance policies to married couples alone. Anyone from dating couples to business partners can take out joint life insurance policies after agreeing on their beneficiaries, term, and coverage amount.