A life insurance need is bigger than a paycheque

What the lesson covers

1. 01

   The family

   Meet Dan and Aisha, parents of two young children. Dan earns the family’s only salary. Aisha stays home and handles childcare, meals and the school runs. The first instinct is to insure Dan, because Aisha earns nothing. That skips the question the family would actually face.

2. 02

   Two risks

   A needs analysis asks the same question about each person: if this person died, what would the family have to pay for, or give up? If Dan died, the salary that pays the mortgage and the bills would stop. If Aisha died, Dan would suddenly have to pay for the work she did, while still going to work himself. Those are two different risks, and neither one is zero.

3. 03

   Price the care

   So put a price on Aisha’s work. Suppose full-time childcare costs about twenty thousand dollars a year. Add after-school care, meals and help around the house: say another ten thousand. That is a new cost of thirty thousand dollars a year, for every year until the children are independent. Then subtract what the family already has, such as savings and group coverage. What remains is the need.

4. 04

   Exam move

   Here is how the exam asks it. Canada Pension Plan survivor benefits? No. Those depend on the contributions of the person who died, and a parent at home may have made few. Only earners need coverage? No. Unpaid work has a real replacement cost. Insurers require both spouses to be insured? No, they do not. The surviving earner would have to pay for the childcare and household services the parent provided. That is the answer.

5. 05

   Takeaway

   Value a parent at home by what it would cost to replace what they do, not by their salary. And follow the same process every time: who is affected, what would have to be paid, and what resources already exist, before you talk about any product.