Are parents required to protect their children from risk?
Suppose you have a 5-year-old who walks half a mile home from school by himself. Would you expect to receive a visit from the authorities? How about if you let him ride in your car without a special car seat? Or without a seat belt? Back of a pickup truck? Would you let her cook on the gas stove by herself? How about take your rifle and go hunting rabbits? Perhaps no safety cap on the prescription medication?
I think it is safe to say that a competent parent would not expose their children obvious risks.
What about other less obvious risks?
Not every 30-year-old parent will live to be 50. Should they be gone by 35, what life risks are there for the child? Education? Four years of university is a $70,000 item. Maybe tutoring in high school? Recreation? How much does hockey, dance, piano, figure skating cost? Quality time? How much do children need a parent to just be with them? What happens if they cannot be there? Who will pay the mortgage?
Money does not solve every problem, but it solves more problems than people think.
Failing to own insurance to replace lost income is irresponsible parenting. Children are a financial obligation. Just like a secured loan. Payments must be made. Life insurance and disability insurance on both parents are crucial. Critical illness on everyone is more than useful.
Many people do not want to spend the premiums because they mistake the nature of the cost.
How much capital does it take to replace a $5,000 a month income? In today’s safe investment world, quite a lot, even ignoring inflation. More than $1,000,000. The missing million is the cost. The tiny fraction paid for insurance is the solution
Insurance is a solution to the real cost, it is not itself a cost unless you do it poorly.
Talk to a competent insurance agent about a “capital needs analysis.” Do not settle for the 20 times income idea. That is not applicable to very many situations. Be sure it is personalized to your situation and be sure you understand it. Watch for spontaneous financing like the Canada Pension Plan. Don’t double count replaced mortgage payments.
The idea of life insurance is that no one dies with everything done. Life insurance tidies up the financial mess. Leave no financial footprints. Disability insurance is required so you don’t find out that while living within your income is hard, living without it is harder. Critical illness insurance provides capital to pay for unusual expenses, provide money to take time off work, and to provide treatment options.
Risk management is a family obligation. Given the variety of products available today, there are good solutions that do not break the budget. Check.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
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