Parental Paperwork: Documents To Update When You Have Children
Expecting a bundle of joy, anticipating the pitter-patter of tiny feet; there are tons of ways to say you have a child on the way. Whether it’s your first or an addition to the brood, one thing is for sure: you have a lot of preparation to do.
While this may conjure up images of baby-gated stairways and childproof locks on kitchen drawers, this is not the kind of preparation we are talking about. No, instead we’re diving into all the new paperwork that accompanies the life-changing experience that is parenthood.
In fact, many parents consider the pregnancy period an opportune time to get their affairs in order, and may have already set up things like insurance coverage, wills, RESPs, and more. If you relate, then great! But don’t assume you’re all set and don’t need to make any changes to these documents and policies once your child is born. The truth is, paperwork like wills and life insurance may need changing or updating once you welcome your new addition.
Why do I need to update my life insurance?
First off, having a child is the number one prompt for most parents to update their life insurance. If you don’t have it, it’s a great time to get the appropriate amount of coverage to cover your partner or children should anything unfortunate happen to you. Life insurance can provide your partner or family with adequate resources to raise your children as you would have planned with you contributing income.
Term life insurance is a great, cost-effective way to cover any debts like a mortgage or car loan, as well as cost-of-living and future education needs like those we mentioned above.
If you already have coverage through a previous policy or your employer, it’s an opportunity to evaluate how the addition of a child may have created or added to a shortfall in your coverage if any, and close that gap (according to our survey, the average Canadian has a $250,000 life insurance shortfall).
Lastly, applying for more coverage gives you the opportunity to add riders to your insurance policy or getting individual policies for your children. Riders are optional add-ons that can extend your coverage, or add more coverages for a spouse or your children as well. Children’s insurance presents the opportunity to secure coverage for your new-born, granting them guaranteed insurability in the future and access to future liquidity at a low cost.
Why do I need to update my beneficiaries?
If you thought simply having life insurance meant that piece of prep can be crossed off the to-do list, you might be reading the wrong post. An important part of life insurance is choosing a beneficiary, and your changing family headcount also means taking a look at who you deem this to be.
Most choose a life insurance beneficiary based on their dependents at the time they enact their policy, and this makes sense at that moment. Most likely the reason you took out a policy in the first place was to cover your debts and provide for dependents like a spouse, child, or parent who had relied on your income.
However, as your family changes and grows, those you intend to receive that benefit will also change. It’s important to specifically name those you intend to receive the benefit; a life insurance benefit is meant to quickly help your beneficiaries deal with the financial impact of your death. Unlike your estate, a life insurance payout can skip probate and go directly to those you intend it to, in the amounts you intend, tax-free.
If you instead use generic language–like children or spouse–it could take months or years for the estate to be settled, depending on your family dynamic. In such cases, attorney and probate fees may erode the final value of your estate and in turn, any life insurance payouts which get grouped into it.
With most insurance providers, adding a child as a beneficiary is as simple as filling out a form. Most parents like to add their children as contingent beneficiaries and appoint a trustee to manage the proceeds (more on this later).
Why do I need to update my will?
Many parents consider a Will one of the most important documents to update when their family starts growing. Not only does it dictate where your property and assets end up once you die, but also expresses your wishes on who is appointed guardian of your children. If you don’t yet have a Will when you first start having children, it’s the perfect time to make one.
You have choices when updating your Will to address your new familial situation. You can create a brand new Will, or you can create a Codicil: a document that modifies your previous will by replacing sections. Regardless of which option you choose, here’s why it’s important.
If this is your first child there are likely going to be two major changes to your existing Will. First, it is likely that the distribution is going to change as a result of the birth of this child. Because you didn’t have children previously it is unlikely that your Will provided any distribution of assets to children. I’m sure you’ll want to change that. Secondly, if this is your first child it means that your previous Will didn’t contain any provision on who the guardian of your children should be. Now is the time to make that important decision.
If this is not your first child, your Will may or may not need to be updated. If you already have a provision in your Will that provides a distribution of assets to all of your children, the new baby might be automatically included in your Will. However, if you assigned a percentage to each child of yours based on who was alive when you created your earlier Will, you are going to want to make an update to include this child as well. When it comes to guardianship, if the person you chose in your earlier Will is still the person you would choose now (and you think they will be able to handle another child), you might not need to make a change to that provision.
So, whether this is your first child or your fifth, it is a good time to take a look at your Will and make sure it reflects your wishes and current circumstances.
If you choose to make your Will online, most solutions offer you the ability to login and update it as many times as needed.
There are a few things to keep in mind when you are making updates to important paperwork. If possible, you should let someone know you’ve named them as a life insurance beneficiary so that they are aware of the benefit due to them at your death.
While this may not be possible with minor children, in which case you should let their trustee or potential guardians know, informing those that are potentially due a payout is critical so that they can enact the steps to claim it.
Finally, while all this can seem daunting at first glance, making updates to your paperwork doesn’t have to be hard, and you don’t have to do it alone. Many online services, like PolicyAdvisor, that help you choose a life insurance have licensed advisors to help you navigate the process of updating or adding to your insurance.
And with all that paperwork out of the way, you can concentrate on what really matters.
This is a guest post by PolicyAdvisor.com, a Canadian online insurance broker that makes insurance buying simple, straightforward, and stress-free.