Christina Huppé’s second pregnancy was gruelling — physically and emotionally. Because the 31-year-old has a blood disorder, she knew in advance there could be complications. Still, she was shaken up enough to make a difficult decision: It was time to get life insurance. Huppé is a working parent, and if anything should happen.... Well, she wouldn’t want her family to struggle without her paycheque to rely on.
Though the Kanata, Ont., mom worried that her pre-existing medical condition would make life insurance astronomically expensive, a broker found an insurance company that would cover her at standard rates. Her husband, Martin, who is 11 years older, got insurance at the same time. “It’s a load off our shoulders now,” says Huppé. “We made it a priority in terms of our finances, and now we feel secure.”
Of course, Huppé, like every parent, hopes her family will never need her life insurance. Who wants to think of a future in which we aren’t around to care for our kids? But that doesn’t mean we should just ignore the future. Yes, financial planning takes some time and commitment but, as Huppé found, it also brings peace of mind.
Here are three important things you can, and should, get started on today. If you’ve already got them covered, read on for advice on fine-tuning your plans as your children grow and change.
Buying life insurance
If your family relies on your income, you need life insurance; it’s the most basic way to protect your partner and kids from financial hardship if you die. How much coverage do you need? While there’s no magic formula, a good rule of thumb is 10 times your before-tax salary (so if you earn $50,000 a year, ask for a policy worth $500,000). “A little bit more if you’re younger, a little bit less if you’re older,” advises Glenn Cooke, a broker in New Hamburg, Ont., who operates the insurance-shopping website insurecan.com.
There are two broad categories of life insurance to choose from. Term life insurance is the less expensive option, covering you only for a specified period — typically 10 or 20 years. You may decide that you only need coverage until your kids move out and are earning their own money; if that’s the case, Cooke says term policies are almost always the best choice. Make sure the one you go with is “renewable,” so that you can easily add another term should you decide to extend your coverage, and “convertible,” so that you have the right to switch to permanent coverage if you change your mind.
Some parents may prefer permanent life insurance, which guarantees coverage for as long as you live, with premiums that stay the same. This option may be cheaper in the long run if you plan to keep the coverage in your old age. It’s also worth considering if there are health issues that might make you uninsurable in the future; Christina Huppé, for example, chose permanent insurance for herself and her children, who have a 50 percent chance of inheriting her blood disorder. “We were also looking to protect our children’s families — our grandchildren,” she explains. Her husband, who has no health risks, opted for a term policy.
Do it now Visit an independent insurance broker for some quotes, or start your research with an online broker, such as insurecan.com. If you already have life insurance, review your current coverage to see whether it’s enough to protect your family.
Getting a will
Once your life insurance is looked after, it’s time to prepare a will, which is a legal document outlining who should look after your underage children, and how and when they should receive shares of your property in the event of your death.
Forget the do-it-yourself kits and hire a professional. “What you get from a lawyer is not just a piece of paper, it’s advice and ideas,” says Edmonton family finance lawyer Lynne Butler, author of Estate Planning Through Family Meetings. It isn’t as expensive as you think: A complete package of wills and powers of attorney, which specify your wishes should you become unable to communicate, costs you and your partner about $500 to $800. You’ll need to update your will if you get divorced or remarried, or when your oldest turns 18.
In this process, your most important decision is naming a guardian for your children. Consider carefully: Butler says many moms and dads want to name their own parents as guardians, something she does not recommend. Your folks may be active grand-parents today, but a lot can change in 10 or 15 years. A sibling or trusted friend about your age is usually a better choice. Specifying a guardian is particularly important for custodial parents who’ve been through a hostile divorce. Unless you specify otherwise, Butler explains, “custody of a child automatically goes to the other biological parent.”
You’ll also need to name a trustee to manage your property and finances according to your wishes. This includes arranging money transfers to help the guardians with expenses; what’s left can go to the children themselves only after they turn 18. Butler suggests not naming the same person as guardian and trustee; choose a different friend or family member who has some financial savvy and a strong backbone.
Do it now Ask friends or family to suggest an estate lawyer and book an appointment. If you already have a will, review it to make sure that it still reflects your current situation.
Saving for education
If you think diapers and toys are expensive, wait until you see the bill for tuition and textbooks. “If your child goes away to university, room and board and tuition can be $20,000 a year,” says Certified Financial Planner Andrew Stevenson, president of Stevenson Financial in Halifax. A recent survey by TD Canada Trust found that 87 percent of parents plan to pay for all or part of the costs of their children’s post-secondary education, yet just 26 percent had started saving toward it.
No matter how much or how little you can set aside right now, your money will grow fastest inside a self-directed Registered Education Savings Plan (RESP), which you can set up at your bank or through an investment adviser. The biggest benefit is the government’s Canada Education Savings Grant, which tops up your contributions by 20 percent. (There are annual and lifetime maximums; visit canlearn.ca for details.)
The earlier you start, of course, the easier it is to save, and the less you need to save each month to meet your goals. But even if you wait until your child is 10 or 11, you could still get all the available grant money. Don’t leave it much later than that: Once your child reaches 15, she’s not eligible for the grant unless you’ve already been contributing to an RESP in previous years. As well, children cannot receive grant money past age 17.
Do it now Talk to your bank or financial adviser about opening an RESP and start contributing, even if it’s just $25 a month. Make sure your child has a Social Insurance Number, which you’ll need to claim the grant.