Before having children, most parents don’t give life insurance much thought. And let’s be honest, once children arrive it’s hard to find time to eat let alone research something that can often be confusing and overwhelming.
But, according to Laura McKay, co-founder of PolicyMe, parents need to be thinking about life insurance sooner rather than later.
“As a business owner and mother to a beautiful daughter, I know how busy life can get”, says McKay. “When we started PolicyMe, we knew we wanted to make life insurance less complicated and more affordable for families since parents are one of the groups that can benefit most.”
PolicyMe streamlined the application process by removing inefficient steps and offers non-commission advisors to keep rates down. The online application process takes less than 20 minutes. And in most cases, you can get approved right away.
So, what exactly is life insurance? How much coverage do you need? We caught up with Laura over Zoom last week to get answers to some of the most commonly asked questions parents have about life insurance.
Before we jump in, can you explain to our readers what life insurance is?
In the simplest terms, life insurance is a financial safety net for your beneficiaries – your partner and kids – if you pass away.
The government of Canada describes a life insurance payout as a “tax-free, lump-sum amount” to your loved ones to help manage expenses after your passing. So, this might include funeral expenses, mortgage payments and any costs related to raising your kids such as daycare or education expenses.
And in the unfortunate event that both you and your partner pass away, life insurance ensures your kids will be taken care of and can have the same quality of life as they do now.
Does everyone need life insurance?
If you have mortgages, financial dependents, a spouse, are saving for education or other future financial commitments, you most likely can benefit from life insurance.
If you passed earlier than expected, ask yourself if your partner would be able to:
• Cover funeral expenses
• Pay the mortgage
• Support the kids and themselves
• And cover existing debts all on their own?
While coverage needs vary on a case-to-case basis most parents, especially those with young children who won’t reach financial independence for several years, can benefit from the financial protection life insurance provides.
I have group coverage through my employer. Is that enough?
While any coverage is better than no coverage at all, you’ll want to ask yourself: How much money would my loved ones need to maintain their current lifestyle if I were no longer there? The amount you need is usually a lot higher than the amount provided through your employer.
Most life insurance plans offered through work, also known as group life insurance, will pay out one to three times your annual salary. So, let’s say you earn $60,000 per year, then you can expect a payout ranging from $60,000 to $180,000.
While that might help cover your family’s housing, food, transportation, and education expenses for a few years, it doesn’t offer long-term protection.
Another thing to consider is how long you are planning to be with your current employer, since group life insurance coverage ends when you change employers. Personally owned life insurance on the other hand, follows you, not the company.
How do I determine how much coverage I need?
The amount you will need depends on three main factors:
- Family and lifestyle factors, such as how many dependents you have and their ages. Remember, younger children have a longer way to go before they reach financial independence;
- Financial commitments such as a mortgage, debts or whether or not you’re planning to pay for your child(ren)’s post-secondary education; and
- Savings and income.
We can help too. PolicyMe has a simple recommendation calculator and our advisors are always available to answer questions and help you determine how much you need.
How often should I be revisiting my plan and coverage needs?
I always recommend revisiting your insurance coverage annually to see how your life has changed and figure out if your current plan is still enough.
Did you have a new child? Do you have a new or larger mortgage?
You can always book an appointment to review your plan with your advisor if you’re unsure.
What are the different types of policies, and how do I determine which type to get?
There are three main types of life insurance: term, whole and mortgage life insurance.
Term life insurance is meant to cover the period in your life where your financial risks are highest when you have financial dependents, a mortgage, or other significant debts or savings goals. Parents of younger children, for example, will have a longer ‘risk period’ than parents of teenagers or young adults.
Plans often come in 10-year increments. The most common range from 10 to 30-year terms. At the end of your policy’s term, coverage ends and payments end. So, it’s always best to choose a term length that matches your risk period.
With PolicyMe you can switch to a longer term length within the first five years, if you change your mind. You can also choose terms with 5-year increments.
Whole or permanent life insurance never expires as long as you pay the premiums. This means your loved ones will receive a payout no matter how long you live but the premiums are also more costly. On average, whole life insurance plans cost about 10 times more than a 10-year term life insurance policy.
Mortgage life insurance pays off the remaining balance of a mortgage if the mortgage holder passes away. But whereas term and whole life insurance payouts go to your beneficiaries – giving them flexibility over how to allocate the funds – mortgage life insurance payouts go directly to the bank.
Another difference to note, is that the value of mortgage insurance decreases over time (as you pay down your mortgage), while term and whole life insurance payouts remain the same.
I have a pre-existing health condition. Can I still get life insurance?
In most cases, yes, but it depends on your age and diagnosis. Pre-existing health conditions such as diabetes or high blood pressure can cause higher prices and may require a medical exam, but most people are still eligible for coverage.
If you have been diagnosed with cancer, you can apply once you’ve been in remission for three years. If you’ve had COVID-19, you simply need to wait until you’ve recovered before applying for coverage.
Remember, there is no harm (or financial penalty) for reaching out to an advisor to find out if you’re eligible.
Are medical exams required?
That depends. If you’re under the age of 55 and don’t have any pre-existing conditions, you likely won’t need a medical exam.
However, if you’re applying for more than $1 million in coverage, you will require a nurse’s visit which is the industry standard.
If you have pre-existing health conditions such as diabetes or high blood pressure, you generally require a nurse’s visit. Oftentimes, your family doctor can provide the records needed to approve your application. In those cases, a medical exam or nurse’s visit isn’t required.
Do both parents need life insurance?
In most cases, yes, since it can help you or your partner pay bills and maintain your standard of living without dipping into savings if one of you passes away. And in the unlikely event that both parents pass, your children will receive payouts from two policies.
PolicyMe offers 5% off term life insurance when couples apply with their partner. This offer can be applied retroactively if one partner has applied in the past.
I’m currently a stay-at-home parent. Do I still need coverage?
It’s definitely worth being insured since if you were to pass away your partner would likely need to pay for support such as daycare, a nanny or housekeeper, etc. If you’re planning to return to work in the near future, you’ll also want to consider your potential future earnings and how the loss of those earnings would impact your family’s standard of living.
Thanks to our sponsor, PolicyMe for providing answers to these commonly asked questions. While it’s never enjoyable to contemplate our own mortality, we hope this helpful Q&A makes life insurance a little less daunting.
PolicyMe is a digital life insurance solution built to make financial protection for families honest, uncomplicated and affordable. To get a quote and apply for term life insurance online in 20 minutes or less, visit PolicyMe.