Health Insurance Planning for Growing Families

October 5th, 2011 | Author: Mitch Reynolds

Focus on Health Insurance #2: Growing Families

What young families need to consider for health insurance coverage

Health insurance Canada For many young families, health insurance is a very big issue. Even the basic ongoing costs of prescription drugs and dental work can add up to a hefty monthly bill. And, because young families usually carry high debt loads and have lots of expenses for children, a more serious event like a disability or critical illness could push growing families over the edge.

This article will give you a good sense of the demographics of the average young Canadian family, their financial challenges and the biggest risks to their financial picture. Not everyone can afford every type of coverage they would like, but getting started with some basic and inexpensive health insurance plans can really save a growing family if something serious happened.

What does a typical growing family in Canada look like?

Here is a typical demographic profile of a young, growing family in Canada. Maybe it looks familiar to your family:

Age of parents, 29 – 45 years old
Married or Common-Law with between 1 – 4 children
Have a mortgage, car loan(s) and often a line of credit
Very often both spouses work
Time is precious and life is very busy between work, family activities, children’s school and extra-curricular activities, etc.

Young families are often trying to get ahead quickly in life. They take on considerable debt levels to buy their dream home, give children every opportunity, live in the right neighbourhood, have kids go to the right school, etc. Both spouses often feel they need to work to afford the life they have chosen.

Young families are not afraid to spend money, and they do so regularly, buying what they want and need to deck out their home, go on family vacations, eat out, etc.

Even though they have dual incomes, young families often feel financially squeezed. They are very concerned about jobs and paying off debt. Extra cash will usually go into paying down the mortgage vs. saving into an RRSP. Saving for their children’s education is also of paramount important and will also usually come before RRSP savings for the parents.

Growing families (the parents) tend to mistrust large financial institutions like banks and insurance companies. They want financial advice on their terms, with personalized service that caters to their busy life. They want to be educated and have a face-to-face advisor they can trust.

Key financial challenges for growing families

So, if that is the demographic of the average growing family in Canada, what challenges do they face? Let’s take the profile above and boil down the real financial picture:

Their mortgage is the largest debt that young families have. The average mortgage in Canada is about $275,000, but can be much higher for new home owners in large Canadian cities like Toronto, Vancouver and Calgary.
The average age of a mortgage holder in Canada is 37.
They usually have at least one car loan and a line of credit of $20,000 or more.
They often carry credit card debt of $5,000 or more month to month.
RRSPs are minimal and are more common through employer sponsored plans vs. personal RRSP contributions.
They will spend at $50 – $200 per month, per child on education savings through RESPs or life insurance.

We can see that the biggest factor that jumps out is the debt level. Mortgage on the house, loans on cars and even a line of credit to buy all the stuff they want now.

The biggest risk factor is that growing families are living on borrowed money. They MUST make regular debt repayments or the lifestyle they have leveraged themselves into will quickly end. Young families must make the mortgage payment, car loan payments, service their line of credit, etc. This can easily eat up over 50% of their monthly disposable income. So if one spouse stopped earning, there would be no money for things like food, gas, utilities, etc.

Health insurance: setting the stage for success

These risks exist for growing families in Canada. It is very common for parents of young families to buy adequate amounts of life insurance to protect their spouse and children. Term life insurance is very inexpensive in Canada today and is a cost effective way to be covered from the big risk of death.

Once the life insurance is in place, most growing families stop planning. They forget about their risk exposure to things like disability, critical illness or even ongoing health and dental expenses. Health insurance is a fundamental part of financial planning for young families, so they can continue to meet their debt obligations and maintain their lifestyle, no matter what happens in life.

Even if you have an employer sponsored group benefits plan that affords you disability coverage and health and dental insurance, you should still have your health insurance plan reviewed. About 45% of workers in Canada do not have any form of group insurance coverage, and are totally exposed to health risks. Here are the types of health risks growing families face:

An income earning parent becoming sick or injured and unable to work
A child being diagnosed with a serious illness, requiring parents to put work and life on hold to help their child recover or cope with the illness
A parent being diagnosed with a critical illness requiring extend recovery time and expensive medication and rehabilitation services
Ongoing health and dental costs that could seriously affect the family’s ability to meet monthly bills as they come due

With all these risks, here is how to allocate your insurance dollars if you have to choose which benefits to buy first:

Disability insurance (if you do not have group disability coverage). Being disabled for an extended period is your biggest risk and more likely than any other health event during our working career.
Critical Illness Insurance. Most group plans do not include this coverage and it can save a family financially when a parent or child must go through extensive treatments and recovery. Plan to be a financial survivor of a critical illness, not just a regular survivor.
Health and dental insurance. Being able to pay for prescription drugs and dental costs can be very important to a growing family’s monthly budget. The prescription drug and extended medical coverage is good risk protection, but dental coverage is very expensive and might be avoided to save money.

Find out more about health insurance planning for your family

If you don’t have adequate health insurance coverage, or you just don’t understand the health insurance plan your employer’s group insurance gives you, we can help. Contact Life Guard Insurance for a free, no obligation review of your health insurance needs to protect your growing family.

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 health insurance for growing families would be very much appreciated.