Income replacement is only half the picture when it comes to life insurance, says co-president of Canada Protection Plan
Anyone who’s gone through an economics course in college is likely to be familiar with the concept of opportunity cost: any decision or action comes with a loss of the potential gain from going with another choice. Since they’re typically not associated with a loss of tangible dollars, people aren’t so good at weighing those types of costs … and one common example should hit close to home.
“I think there’s a perception that members who don’t bring in any income — they’re not running a business, doing a job, or taking on a side gig — don’t need to be insured,” said Michael Aziz, co-president at Canada Protection Plan. “So there’s a focus on covering the working spouse, because obviously there’s a need to replace their income in case something undesirable happens. It only makes sense.
“But let’s say the family includes a stay-at-home spouse who does the cooking, does the shopping, does the laundry, cleans, and makes sure the kids get to school and don’t miss their hockey practice or ballet lessons. And what happens if you have to replace all that?”
What happens is that the family is faced with a tough choice: ask favours of other relatives or friends who would be willing to handle the now-unattended-to domestic affairs, or pay a small fortune to various service providers to do it. There are many reasons why nannies, cleaners, and caregivers are sometimes called “the invisible workforce,” one of which is the fact that housework is taken for granted until there’s no one left to do it.
“And the need for coverage doesn’t necessarily stop with life insurance,” Aziz said. “What happens if that stay-at-home parent suffers a critical illness? If they’re undergoing treatment for cancer, for example, they can no longer pick up the children, go grocery shopping, or manage the household. In that case, you’ll also have to outsource the work, plus figure out what arrangements have to be made to care for the spouse who’s ill.”
Putting an exact dollar value on domestic work can be a complicated exercise. An obvious first step would be figuring out what service providers would have to be brought in and the salary or service fees that they would charge. Then there’s forecasting how many weeks, months, or years they’d be needed for, which could differ: nannies would likely not be necessary once the kids hit 15 years old.
“Some stay-at-home spouses don’t plan to stay in the house forever either,” Aziz said. “The couple may agree to have one spouse be taking care of the children until they’re 14 or 15, at which point they’ll get a job. That income may go toward paying for the children’s education or building the couple’s nest egg, so that type of lost opportunity may also have to be accounted for.”
As with all types of life and health insurance, premiums tend to increase with age. And if one’s medical record includes a health condition or disease, they could either end up paying steeper premiums or not being eligible for certain types of coverage. The takeaway, Aziz stressed, is that the decision to get life insurance or critical illness coverage should come sooner rather than later.
“What holds a lot of people back, unfortunately, is lack of time to go through a cumbersome application process,” he said. “That’s what we aim to address with our Express Elite products, which comes as either T20 or T30 life insurance coverage. It’s no-medical insurance, and coverage of up to $750,000 is issued in two or three days, which offers much-needed convenience for a lot of families.”
Many families with stay-at-home spouses can only devote a limited amount of money to insurance, which can make deciding on the right type of coverage complicated. Money might be no object for others, but their financial priorities may go beyond covering costs of housework, retirement planning, and paying for education to include items like estate planning.
“In those cases, people can really benefit from a financial advisor,” Aziz said. “If you’ve got a good one, they can figure out the right mix of term coverage and permanent coverage to fit your specific needs.”