Why Many Older Parents of Young Children are Underinsured – and How they Can Get Protected

This is a re-post of an original article from The Globe and Mail, you can view the full article here.

As more Canadians get married and have children in their later years, they may be overlooking opportunities to protect their assets and loved ones using life insurance.

Advisors warn that the longer people wait, the more expensive it becomes to purchase an insurance policy because of their age and potential health issues.

A new report from Angus Reid and PolicyMe shows Canadians are cutting back on insurance amid the rising cost of living, yet 25 per cent aren’t sure their families would be secure financially if they passed away unexpectedly.

About two-thirds of uninsured Canadians are unlikely to get life insurance in the next five years, the report states. It notes that 34 per cent of younger Canadians aged 18 to 34 are the most likely to purchase life insurance, but that number falls to 22 per cent for
Canadians aged 35 to 54 and to just 4 per cent for those over 55.

The report also shows that 26 per cent of Canadians cite required medical tests as a barrier to purchasing life insurance.

Premiums are higher as people age, and assets are worth more

Farzana Damji, senior director of individual insurance development at RBC Insurance, says parents who delayed having children may not have purchased insurance in their younger years because they had no spouse or children at that point in their lives.

She says older parents acknowledge the need to protect their families from an unexpected death. But some balk at the cost, not just because of their age, but also because of how much insurance it will take to replace their standard of living.

“Any hiccup in their financial plan will set them back more than it would someone in their 30s,” she says.

Ms. Damji explains that as people age, they tend to own more assets, and it costs more to protect them.

“Many have also become used to a higher standard of living, so the amount of insurance they need … will be a lot more,” she says.

Andy Kovacs, certified financial planner (CFP) with Moments of Truth Insurance Services Corp. at Sun Life Canada in Markham, Ont., says even some parents with significant investments can be vastly underinsured.

Clients in their 50s are often in their peak-earning years, juggling a mortgage, retirement savings, child care costs, extracurriculars and sometimes the care of aging parents, he adds.

“They have a shorter runway and more competition for every dollar,” Mr. Kovacs explains. “But there’s very little underpinning if the worst happens.”

Insurance solutions for older parents

Joint first-to-die term insurance – in which both spouses or partners purchase the policy and they’re given a blended age and premium – is an option for older parents to consider. Ms. Damji says it’s more affordable and fits into many family budgets.

“It takes into account the risk for both parents,” she says.

The death benefit is payable on the first death, and from there, the surviving spouse builds out their own policy, Ms. Damji says.

A joint last-to-die policy is another option, which pays out on the second death and allows for more estate planning for the kids, she says.

“Some parents don’t need the income right away but want to leave something behind for their kids,” she says.

When Hervin Pesa, CFP at Aware Financial in Calgary, started in the insurance business a decade ago, he says he was taught that wealth preservation and estate planning were strategies to focus on for people in their 50s.

The thinking was that the 50s cohort was comprised of mortgage-free, empty-nesters. But looking at his current client base, that’s not the case for some families.

“They’re not necessarily as established as people assume,” he says, noting some parents in their late 40s, 50s and 60s are raising young kids, tweens, and teens. In addition, young adults are living with their parents longer, which can add to their parents’ expense load.

“People are definitely keeping their insurance policies longer for the risk needs,” Mr. Pesa says. “Just because you get to a certain age doesn’t mean your needs are specifically for wealth building.”

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