In the unlikely but not implausible case that you or your partner dies, life insurance pays out a predetermined lump sum of money to the surviving spouse. If there isn’t another parent, the funds go into a trust for the kids. Disability insurance is similar; however, in this case, the parent is still alive but is unable to earn an income because of an injury or a long-term illness. Despite how annoying it is to pay for something you’re unlikely to ever use, every parent should have insurance.
Term insurance lasts for a set number of years (anywhere from 10 to 40), whereas permanent, also known as whole life, is insurance that’s in place until you die. Most parents opt for term insurance because it’s more practical and the monthly payments are cheaper. “People who are having children tend to be younger, and the younger you get term insurance, the cheaper it will be,” explains financial planner Christine Williston.
The amount of insurance you need will depend on a lot of factors, from how many kids you have to what kind of lifestyle you want your family to be able to sustain if you aren’t around. “You want to make sure your debt is paid off, so that’s the easiest number to calculate,” says Julia Chung, CEO and financial planner at Spring Planning in South Surrey, BC. “And then you want to look at what it’s going to cost to replace you, financially, as long as your children are financially dependent.”
If you’re employed, your benefits package might already include some insurance! Still, in most cases, it won’t be enough, so you’ll want to supplement it.
If you can swing it, it’s smart to get disability insurance as well as life. “When people are in the age group that they’re having children, the likelihood that they’re going to die within the next 10 to 20 years is typically low, but the likelihood that they’re going to become disabled is actually pretty high,” says Chung. That’s why disability insurance fees, known as premiums, seem expensive compared to life insurance fees—the insurance companies need to pay it out more often, so they charge more for it.
First, check with your employer’s benefits package to see what you already have. If you’re a member of a professional or alumni association, check to see if it offers group plans, as this can be a cheaper way of getting insurance. Otherwise, contact an insurance broker, who can shop around for you. Be prepared to go through a medical examination, which could include blood and urine tests; weight, height and blood pressure measurements; and a discussion of your medical history.
Chung suggests you think of life and disability insurance the same way you do car insurance. “You wouldn’t drive without it,” she says.