The primary purpose of life insurance is to take care of financial responsibilities in the event of premature death.
There is a theory of decreasing responsibility that applies to most of us. New parents with young children, a significant mortgage, some consumer debt and little savings, have much to carry, but not a lot in the bank to carry it. They earn a healthy income to manage their financial responsibilities, but, in the event of an untimely death, a major source of income disappears and the effects can be devestating. As the years pass, the kids grow up to earn their own way, the mortgage is paid off and savings are accumulated. In other words, the theory of decreasing responsibility kicks in. As time passes, our financial responsibilities reduce and our assets increase; until then we need life insurance to replace our income and cover our debts if we were to die.
For parents of children with disabilities, the theory does not always apply. A child with a disability may not be able to earn a reasonable income on a consistent basis when they are older. As parents, financial responsibility for a child with a disability may never end, even after death. The responsibility does not decrease, much less disappear. In some cases the responsibility increases.
Unless parents have amassed significant wealth to support their child, they will have to figure out another way. Families in the middle income bracket may not be able to amass significant wealth to leave a child with a disability, but they are in a position to afford life insurance. A life insurance policy can leave a significant amount of money to support a child after death.
There are different types of insurance policies. Term policies last for a specific period of time. You can purchase a 20 year term policy, but after 20 years of paying premiums the coverage ends. Alternatively you can purchase a permanent policy, which remains in force until you die, assuming you have paid the required premiums. The cost of a term policy is much less than a permanent one. However, the benefits of a permanent policy should far outweigh the cost and provide more for a child than what middle income earners would be able to save on their own.
There are many types of permanent policies. Even with permanent insurance, there are some policies types are less expensive than others. For example, a couple may purchase a “joint first to die” where one policy covers both the husband and the wife, paying out the benefit once the first person dies. Such a policy costs less than individual policies. A “joint last to die” policy where the coverage is paid out after the second person dies is typically even less expensive.
If you have a child with a disability and believe you will need to continue supporting your child for the duration of his or her life, you may benefit from consulting with an insurance broker who can understand your circumstances and is able to clearly explain appropriate options and you believe is working in your best interests.
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You can contact Ron Malis at rmalis@monarchwealth.ca
Posts like this are so important, Ron. I’ve found when I’ve worked with families of people with disabilities, that many of them have given no thought to subjects like life insurance and estate planning – but I’ve seen firsthand how the need for that planning can kick in much more quickly than anyone thinks (or wants) it to. No one can afford to be unprepared, especially when a child with a disability is in the picture.
Hi Ron,
Very kindly could you make a suggestion is how to obtain insurance at 53 years old. I don’t know the first thing about whether I should be getting whole or term insurance and from what I have read whole insurance is out at my age. Term insurance is so expensive and I wonder would I not be better putting the $80 per month into an RDSP for my son who is DTC qualfied?
Thank you,
Margaret.
Hi Margaret,
First, just because you are 53 does not mean whole life and other types of permanent coverage are no longer an option. If your objective is to leave money for your son, regardless of when you die, permanent insurance often makes a lot of sense. However, permanent coverage is normally more expensive than term coverage.
If cost is an issue, term insurance is something to consider. You just have to realize that you may outlive your term insurance.
I don’t know if I would say you would be better off putting the money into an RDSP instead of a life insurance policy. Part of it depends on how long you live, which is unknown. Example: if you put $80 a month into an RDSP but died prematurely, say 12 months later, all you would have at most is $3,880 in the RDSP (your contributions and contributions from the government) plus any investment growth. If you put the $80 a month towards a term life insurance policy, you would leave far more behind for your son. A $250,000 20 year term policy for a 53 year old female non-smoker would cost approximately $80 a month.