From decorating a nursery to baby-proofing a home, becoming a new parent comes with a long checklist of to-dos. It’s a significant life change and it can impact everything in your life.
While it’s not the most fun to think about, one part of being a new parent that is commonly overlooked is end-of-life planning.
Whether you’re expecting or recently became a parent, here’s why you should put life insurance and estate planning at the top of your list.
Life insurance and estate planning should go hand in hand
Life insurance and estate planning work together to help protect your family’s future.
While we know it’s difficult to think about death during this special time in your life, you’ll enjoy peace of mind knowing that you’ve taken the steps to provide a safe financial future for your family.
It’s commonly overlooked, but life insurance is one of the best ways new parents can protect their family. Life insurance helps your loved ones in the event of your unexpected death, by providing a tax-free lump sum payment to your chosen beneficiaries (often a spouse or your children). This can help offset unexpected costs, loss of income, and cover any other expenses while your family adapts to their new life situation.
Some things that life insurance can cover include:
- Mortgage payments
- Funeral/burial expenses
- Personal loans (e.g., for automobiles)
- Future expenses (e.g., university tuition for children)
Wills and estate planning
Estate planning is the process of outlining a plan in advance for your assets (or your “estate”) after you pass away. This includes creating a will and power of attorney documents, and other end-of-life planning details.
Almost two-thirds of parents in Canada don’t have a will. As a new parent, having a will in place is one of the best ways to protect your family in the event that you pass away. There are many reasons parents need a will, including:
- Choosing a guardian for minor children
- Outlining specific gifts and wishes
- Managing details around inheritances (including the amount your beneficiaries receive and the age at which they get the inheritance)
Without a will, many of these decisions will be made by the courts based on provincial legislation — and in many cases, these decisions may not reflect the choices you would have made yourself.
Part of estate planning also includes making power of attorney (POA) documents. Unlike a will, you may never need your power of attorney. But in the event of an unexpected emergency, your POA will make decisions about your property, finances, personal life, and medical care.
Taking out a new life insurance policy
As a new parent, taking out a new life insurance policy can feel overwhelming. But the good news is there are a lot of different options out there, including term life insurance and permanent life insurance. Both have different benefits depending on your circumstances.
One of the first things you should do before choosing a policy is review your finances. This can help you determine how much coverage you need. The amount of coverage you should get typically depends on your household income, ongoing expenses, and liabilities (mortgages and other debts).
Some budget and finance questions to take into consideration include:
- What are your new everyday expenses (i.e. diapers, food, other necessities)?
- What are the expected costs of childcare?
- How much do you have saved in an emergency fund?
- Are there additional financial obligations to account for (i.e. RESPs, mortgages, debt payments)
Once you’ve determined how much life insurance you need, shop around for the best life insurance rates and pick a policy with coverage that works best for you.
Updating your existing life insurance policy
Having a child is a common trigger to purchase life insurance, but some people purchase life insurance during other life events, such as after getting married or buying a home. So you may already have life insurance
You may also have life insurance coverage through your employer benefits program, but be sure to check the amount. It’s typically a smaller plan and often not enough to cover all your expenses.
If you already have life insurance, it’s important to update your policy accordingly as a new parent. This can include removing backup beneficiaries and adding your new child, or making your child the primary beneficiary. Some parents will also increase the amount of coverage to account for the financial costs of a family versus just an individual.
If you have health insurance or other benefits through your workplace, this is a great time to make sure your child is added as a beneficiary to those plans, too.
Creating your will and power of attorney documents
Wills and power of attorney documents can feel overwhelming but creating them is easier than you might think.
There’s a common misconception that you need to visit a lawyer to make a will, but there are many ways to make a will yourself as a parent through online will platforms or even a will kit. As long as you’ve met the requirements for a legal will, you’re covered.
If you already have a will, remember to update it to include your new child as a beneficiary.
Being prepared ahead of time is one of the best ways to protect your loved ones as a new family. Fortunately, it doesn’t have to be complicated.