A majority of Canadian parents admit that they are underinsured, and this provides a major opportunity for financial advisors to help clients protect their families from the unexpected.

In a recent poll conducted for TD Insurance, 21% of parents surveyed said they did not have life insurance. Of those who did have insurance, 55% said they did not believe the policy would leave enough money to support their children to the age of 18.

These results show that most families recognize that they need more life insurance, but many are unaware of the options available, according to Dave Minor, vice president at TD Insurance.

“There’s probably a lack of comfort and confidence, which is underpinned by a lack of knowledge and education around insurance,” says Minor. For example, he says many families assume that life insurance is too expensive, and are unfamiliar with affordable options.

“Young families with children are usually fairly tight for money,” he points out. “They just don’t think they can afford it.”

Financial advisors can play a role by educating clients and emphasizing the importance of planning for the unexpected. “Advisors have a huge role, in that part of their job is to get clients to think about the future,” Minor says. “It’s part of sound financial planning.”

As the population ages and baby boomers prepare to retire, many advisors have shifted their focus from insurance to investing, observes Sterling Rempel, a certified financial planner with Future Values Estate & Financial Planning in Calgary.

“I think there’s fewer people talking about life insurance,” he says. “There’s more people talking about retirement planning and related investment topics.”

Adds Rempel: “I think there’s a great opportunity to serve our clients by talking about their insurance needs.”

Considerations for young families

When addressing the life insurance needs of young families, the main consideration is typically ensuring sufficient income will be available in the event that something might happen to one or both of the income-earners in the household.

“As people have growing families, we talk about family income,” Rempel explains. He uses a capital needs analysis to assess the family’s spending habits and determine what level of income would meet their needs in the event that a parent was no longer earning income.

Another key consideration for young families is debt, since young parents are often carrying a hefty mortgage on their first home. Covering this type of debt is one reason that Rempel often encourages young clients to initially purchase life insurance.

“If they’re just starting out, they might want to buy some insurance to cover off the debt that they might have from their student loans or the mortgage on the house they just purchased,” he says.

Since finances are often tight for families raising young children, the cost of insurance is a key consideration. Ten-year or 20-year term insurance policies are typically the most popular options for these types of clients, due to their competitive rates.

“It’s economical, it’s straightforward,” says Minor.

Term insurance is also appropriate for young families since many of their needs are temporary in nature, Rempel points out. He explains that paying down a mortgage and providing for children are realities that are limited to a certain phase of a client’s life. By buying term insurance, clients can reassess their insurance needs once the initial term is up, and can likely reduce the amount of coverage they require.

Rempel notes that many clients match the term of their insurance policy with the term of their mortgage, since their coverage needs will change once the mortgage is repaid.

Approaching the subject carefully

Minor warns advisors that approaching the topic of life insurance can be challenging, since it forces clients to consider the possibility of an unexpected and undesirable circumstance.

“It’s probably uncomfortable for most people,” he says. “It does cause people to think about a situation or an environment that we hope we all avoid.”

But despite the discomfort, Minor says it’s a critical issue for advisors to address. He suggests that advisors raise the topic of insurance when significant changes are occurring in clients’ lives, including marriage, having children or buying a house.

“Those are all milestones that are good points in time for families to think about what their insurance needs are,” he says, “and also for advisors to use as a point of conversation, or a re-evaluation of a family’s circumstances and their insurance needs.”

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