Life Insurance for Parents Canada: Jargon-Free Guide

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When considering life insurance for parents, the central question often revolves around how to ensure financial security for your children if the unthinkable happens. Life insurance for parents is a crucial step in preparing for the future, offering peace of mind that your loved ones will be taken care of. 

Key Takeaways

  • Parents should consider life insurance not only to provide for children’s expenses, like education and daily living costs, but also to cover funeral expenses and to compensate for the income or services (like childcare) they provide.
  • Life insurance for parents comes in two main types: term life insurance for fixed periods of coverage and permanent life insurance for lifelong security, each with their own benefits and applicable situations.
  • The cost of life insurance premiums is influenced by factors including age, health, and lifestyle, with the underwriting process assessing these risks to determine coverage and rates.

Understanding Life Insurance Needs for Parents

Life insurance for parents is far more than just a policy. It’s a promise to provide financial security to your children and manage outstanding debts or loans, even if life throws an unexpected curveball. With a well-chosen policy, parents can ensure their children have the necessary resources for:

  • higher education expenses
  • medical expenses
  • daily living expenses
  • mortgage or rent payments
  • funeral expenses

At first glance, stay-at-home parents might perceive life insurance as irrelevant. But there are several reasons why life insurance is important for them:

  1. The replacement cost of childcare and household maintenance is significant, suggesting a coverage range of $250,000 to $500,000.
  2. Life insurance provides the surviving spouse with financial support, maintaining their standard of living.
  3. Life insurance offers a financial cushion for expenses, from funeral costs to university tuition.

2 Main Types of Life Insurance Policies for Parents

When it comes to life insurance policies, one size does not fit all. As a parent, your policy must align with your family’s needs, financial capacity, and long-term goals.

1. Term Life Insurance for Fixed-Period Coverage

Term life insurance offers protection for a specified duration, commonly between 10 and 30 years. This coverage can provide financial security during that time frame. This flexibility, coupled with its affordability, makes term policies a popular choice among parents. 

If you’re a single parent seeking a cost-effective safety net for your children, term insurance is likely your best bet.

2. Permanent Life Insurance for Lifelong Security

On the other hand, permanent life insurance extends coverage throughout your lifetime, thus securing unwavering protection for your loved ones. This makes permanent life insurance policies particularly suitable for parents providing lifelong support, like those with a special needs child.

How To Choose The Right Amount of Coverage for Parents

A question that often surfaces in life insurance discussions is - what constitutes sufficient coverage? Parents can estimate the right amount of coverage using the DIME method, which encompasses:

  • Debts
  • Income replacement
  • Mortgage
  • Educational expenses

Alternatively, they can use a life insurance calculator considering factors like annual income, years of dependency, and future expenses, including education and funeral costs.For income-earning parents, it’s commonly recommended to purchase life insurance coverage that amounts to 5 to 10 times their gross income. For stay-at-home parents, the monetary value of their contributions to household duties and childcare should also be part of the equation!

Evaluating Life Insurance Premiums for Parent Policies

Health status, age, gender, and the amount of coverage are the main factors that influence life insurance premiums for parents. 

Quick example, for $250K in coverage over 30 years: 

  • A 40-year-old non-smoking man will have premiums starting at $48.45/ month.
  • A 30-year-old non-smoking woman will have premiums starting at $19.27/month.

But what if you’re a smoker, or have health issues? While smokers may face higher premiums, they can qualify for non-smoker rates if they quit smoking. For parents with health issues, guaranteed issue life insurance policies may be an option, although they may come at higher costs. 

The Impact of Age and Health on Life Insurance for Parents

Rather than being static, the cost of life insurance depends in response to variations in your age and health. Life insurance premiums are typically lower when purchased at a younger age due to lower health risks. But as policyholders age, life insurance premiums tend to increase because of the higher health risks associated with aging.

On top of age, certain health factors, like smoking or engaging in high-risk activities, can make your premiums more costly. And in some cases, serious illnesses, risky hobbies, or certain jobs can even limit your coverage options or result in application rejection.

But even if you have pre-existing medical conditions, there are still options for getting life insurance, although this can affect the price and terms of the policy

Strategies to Make Life Insurance Affordable for Parents

Affordability is a key concern for getting a life insurance life insurance policy as a parent. Thankfully, there are several strategies to help parents afford life insurance. Some of these strategies include:

  • Opting for term life insurance, which is typically more affordable than whole life insurance due to the absence of a savings component and its limited coverage period.
  • Exploring whether a joint life insurance policy rather than individual policies is more cost-efficient for your needs.
  • Getting quotes from various life insurance companies to compare rates and select the most economical option.
  • Choosing a shorter term coverage length.
  • Taking steps to improve your health and reduce risk factors.

These strategies can help parents find affordable life insurance options that provide the necessary coverage for their family’s needs.

Summary: Guide to Life Insurance for Parents

  • Life insurance is usually a good idea for parents, offering a safety net for kids and spouses, covering education, managing debts, and easing estate planning.
  • Choose a policy type–term or permanent–and coverage amount that fits your family’s needs and budget.
  • Parents can save money on their life insurance coverage by applying while they’re still young and generally healthier. 

Frequently Asked Questions About Parent Life Insurance

Can parents be beneficiaries of life insurance?

Yes, parents can be beneficiaries of life insurance policies. Naming parents as beneficiaries allows policyholders to provide financial support for their parents in the event of the policyholder’s death.

Whether it's to cover funeral expenses, outstanding debts, or ongoing financial support, naming parents as beneficiaries ensures that the death benefit is directed according to the policyholder's wishes.

When selecting beneficiaries for a life insurance policy, it's essential to consider factors like family dynamics, financial needs, and any legal or estate planning implications. Consulting with a licensed insurance advisor from life insurance providers like PolicyMe can provide guidance on naming beneficiaries and ensuring that your policy aligns with your overall financial goals and objectives.

How much life insurance coverage do parents typically need in Canada?

The amount of life insurance coverage parents need in Canada depends on various factors, including their financial obligations, income replacement needs, and long-term goals.

Parents should consider factors like mortgage or rent payments, outstanding debts, childcare expenses, education costs for their children, and future living expenses when determining their coverage needs.

Additionally, it's essential to account for inflation and potential changes in financial circumstances over time. Consulting with a licensed insurance advisor from life insurance providers like PolicyMe can help parents assess their coverage needs and select a policy that provides adequate financial protection for their family.

What should parents consider when naming beneficiaries for their life insurance policies in Canada?

When naming beneficiaries for their life insurance policies in Canada, parents should consider their family dynamics, financial needs, and long-term goals. It's essential to choose beneficiaries who will be responsible and capable of managing the death benefit in accordance with the policyholder's wishes.

Parents may consider naming their spouse or partner as the primary beneficiary to provide financial support for the surviving family members. Additionally, they may name their children as contingent beneficiaries to ensure that the death benefit is directed to them if the primary beneficiary predeceases the policyholder.

It's crucial to review and update beneficiary designations regularly, especially after significant life events like births, deaths, or changes in family circumstances.

What happens if parents miss premium payments for their life insurance policy?

If parents miss premium payments for their life insurance policy, the consequences depend on the specific terms and conditions outlined in the policy. In many cases, insurance companies offer a grace period during which policyholders can make late payments without penalty. If the premium remains unpaid after the grace period expires, the policy may lapse, resulting in loss of coverage.

But some policies may offer options like automatic premium loans or reinstatement provisions to help policyholders maintain coverage. It's essential for parents to understand their policy's payment requirements and options for addressing missed payments to ensure that their life insurance coverage remains in force.

Can both parents be covered under the same life insurance policy?

Yes, both parents can be covered under the same life insurance policy, typically as joint policyholders or as primary and contingent beneficiaries. Joint life insurance policies provide coverage for both individuals under a single policy, with the death benefit paid out upon the first death.

Alternatively, one parent can purchase a policy with the other parent named as a beneficiary. This arrangement ensures that both parents are financially protected in the event of the policyholder's death. Consulting with a licensed insurance advisor from life insurance providers like PolicyMe can help parents explore their options and select the most suitable policy structure for their needs and circumstances.

Is life insurance for parents in Canada necessary if they already have coverage through work?

While life insurance coverage through work can provide valuable protection, it may not be sufficient to meet parents' financial needs in Canada. Employer-sponsored life insurance policies often have limitations, like coverage amounts based on salary multiples or termination of coverage upon leaving the job.

Additionally, coverage through work may not be portable, meaning it does not follow parents if they change jobs or become self-employed. Purchasing a separate life insurance policy provides parents with control over their coverage, ensuring that they have adequate protection regardless of employment status. Consulting with a licensed insurance advisor from life insurance providers like PolicyMe can help parents evaluate their existing coverage and determine whether additional life insurance is necessary to meet their family's needs.

Can the coverage from infant life insurance policies be used for education or other expenses?

By getting a life insurance policy for your child at a young age, you could potentially build cash value over time that can be used to pay for a child’s education. Alternatively, you can invest in a Registered Education Savings Plan (RESP), instead of a life insurance policy. An RESP prioritizes your child's education, providing a dedicated fund for their future academic pursuits.