If you're the sole earner and provider for your family, every dollar counts. Consider the following:
1. Life insurance
A child is dependent on your income so you’ll need life insurance. A general rule of thumb is to get a policy with a face value of at least 10 times your annual income (e.g., a $700,000 policy if you earn $70,000). However, the amount of insurance you need really depends on things like how much debt you have and your expectations for the money (e.g., how long it needs to last). Discuss this with an insurance advisor.
Usually, you make your child or children the beneficiary(ies) of the policy, to receive the proceeds in the event of your death. Generally, you name a trustee (e.g., your child’s other parent, a grandparent or other relative) to look after the money on your child’s behalf until your child reaches a specified age (often but not necessarily the age of majority). In Quebec, the policy funds are paid to the tutor of a minor child, rather than a trustee.
Are you receiving child or spousal support? Make arrangements for those payments to be insured as well. Otherwise, if something happens to your ex, there may not be enough money in his or her estate to cover any ongoing support obligations.
2. Disability insurance
Disability insurance may provide you with income if you become disabled and unable to work for longer than a specified period. To qualify for disability insurance, you will need to have steady income already established. Most workplaces offer some disability coverage but if you ever lose your job, you will lose that coverage, plus the potential of getting coverage through other sources. If you work on contract with no benefits, talk to an insurance advisor about your disability insurance options.
3. Critical illness insurance (CII)
Critical illness insurance pays out a lump sum in the event you are diagnosed with a covered, life-threatening illness such as cancer, heart attack or stroke. The lump sum, payable to you after diagnosis (subject to certain conditions, such as having to survive for a specified length of time), can be spent any way you wish.
CII was an invaluable product for Louise, single mother of eight-year-old Owen. She was diagnosed with breast cancer and had to take a leave of absence from her job. Her employer paid her for three months through a short-term disability plan but Louise missed work for more than a year. Fortunately, Louise had critical illness insurance, and received $100,000 from her policy. This allowed her to hire extra childcare, pay down her mortgage and keep up with overall expenses for herself and Owen while she was undergoing chemotherapy treatments. Having the extra money meant she didn’t have to dip into her retirement savings.
Also consider taking out a CII policy for your child. Let’s say Owen is the one who was seriously ill and Louise needed to leave her job — her only source of income — to care for him full-time. The lump sum from the CII policy can replace Louise’s income while she’s away from work, and be used for drugs not covered by provincial health plans as well as overall living expenses.
4. Accident insurance
Accidents happen every day. We can’t predict when or if they occur, so it’s best to be prepared. This is where accident insurance comes into play. A serious accident could affect your ability to work again. Coverage is available up to $250,000. It may also be wise to get accident insurance for your children, to help pay the bills if your child has a serious accident and you need to leave your job to take care of her.
5. Life insurance for your kids
Children’s life insurance policies are typically inexpensive, costing less the younger a child is. They can provide significant base coverage ($250,000, for example) with the opportunity to buy additional insurance in the future, regardless of their future health or lifestyle.