Having Children is a Huge Responsibility – Not Just Financial
Financial dependence skyrockets when having children
Having children! It doesn’t matter if it’s your first child or your tenth, these little bundles of joy bring the greatest happiness and the most stress into your life. Your children are precious and they depend on you for everything. Their food, clothing, shelter, love, compassion, education and understanding.
It’s not just a hard job, having children – it’s the hardest job you’ll ever have. You are suddenly responsible for the future care and well being of this little person. In terms of financial impact, a child brings a whole new level of risk to your financial picture. For the next 20 years or so you (both parents) are the providers and caregivers to your child or children. Let’s take a closer look at how to protect your children from financial risk.
What is your financial risk when having children?
The responsibility you have to your children is to provide them with the basic necessities of life, keep them safe, and be a caring and loving parent. Those are the basics, but most parents want to do so much more. They want to send their children to the right schools, enroll them in extracurricular activities, save for university, feed them the best foods, take them on vacations, deck them out with sports equipment, etc., etc., etc.
All this costs money – the money you make buy going to work and earning a salary or wage. The risk is that if that money stopped suddenly, due to your death or disability, who would pay for all these things? Would your children continue to have the same standard of life you provided for them? Would they still be able to achieve the dreams you wanted to support?
It all costs money, and that’s the risk. To protect your children you need financial protection to continue to prove money if you pass away or can no longer work. This means you need proper insurance coverage.
The cost of raising children
In doing a little research I came across a few websites that have tried to tally up the cost of raising children in Canada. The first was the Canadian Finance Blog in their article called How Much Does Raising a Child Cost? I found this article to be overly simplistic, as it tallied up only predictable expenses, like food, clothing, transportation, childcare, recreation, etc. The analysis seemed somewhat lacking, but the total cost this writer came to was $182,190 by age 18 (or $10,121 per year per child). There are lots of comments on this post were real people disagree or add to the analysis above, so the discussion is very good.
Secondly I found an article by MoneySense Magazine online called The Real Cost of Raising Kids, which pins the final tally for childcare and all other expenses at $12,825 per year, per child in Canada. I found this article and analysis more accurate and comprehensive.
In reality, your family will be different from everyone else’s. Maybe you can save money on each child and raise them very economically, and still give them the best leg up in life. Maybe you send your children to only the best private schools and go on beautiful vacations. No matter. Each family’s cost of raising children is a little different. In the end, it is very expensive, and a large financial burden that weighs on your future to the tune of about $200,000 of financial risk for each child you have.
How long are you “on the hook” financially?
This all depends on how long you see yourself supporting your children. For some people they make their children financially responsible for their own life at age 18. For others they continue to support them through post-secondary school and even until they get married and move out. I think you should be planning on being 100% financially responsible until age 18, then your responsibility reduces a bit through university or college (assuming you have saved up some RRSP money) and finally once they are out of school and get their first professional job, they are on their own.
That makes about 22 or 23 years of financial responsibility and risk added to your picture for each child you have. Take you youngest child, minus their current age from 22, and that is the number of years you are “on the hook”. Plan to have enough insurance to protect your kids until the youngest is financially independent.
Best ways to use insurance to protect your children
Life insurance is the corner stone of any insurance risk plan. You can probably get away with a Term 20 life insurance policy for offsetting risk for your children, but this might not be long enough. If you are just starting having children, and there might be 5 to 10 years between the youngest and the oldest, you would be better off getting a Term 30 policy.
If you can afford it (and with the cost of raising children, many families can’t) getting some level of permanent life insurance, like universal life or whole life insurance, would also be a good idea. It provides your kids with risk protection today, and if life is good, and you don’t die prematurely, then you are building an estate plan to leave money to the next generation through life insurance.
You also need to protect your income and health while you’re alive, especially for the benefit of your children. If you were disabled due to an injury or an illness, would you be able to afford all the things you have today? Your income – your cash flow – needs to be protected with Disability Insurance, and your health can be insured from serious life altering illnesses with Critical Illness Insurance. Both of these policies pay benefits to you while you’re still alive, helping to maintain your lifestyle and seek the best healthcare available. This adds protection to your children’s future, knowing that even if you are sick and/or disabled your family will not lack financially.
We can help you build an insurance plan when having children
At Life Guard Insurance our brokers have lots of experience dealing with families with children. Most of our brokers have children of their own, and know what it means to be responsible for raising kids. Contact us today, and we will connect you with a professional insurance broker across Canada who can show you how to protect your children’s future with insurance.
The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about life stage having children and insurance planning would be very much appreciated.