Insurance options for the sandwich generation

In an unsteady economy, being sandwiched between children and elderly parents is no picnic.
Middle-aged adults in their 40s and 50s who are raising families while managing their senior parents’ needs are in a precarious position regarding their income. They’re spending on groceries, kids’ activities and caregiving costs while attempting to pay off mortgages and save for retirement. And that increased financial pressure can wreak havoc on their health, putting them at risk of a chronic illness, disability or disease.
Eighty-six per cent of sandwich-generation caregivers reported that their care responsibilities affected at least one aspect of their health and well-being, leading them to feel tired, anxious and overwhelmed, according to Statistics Canada.
“It’s stressful,” says Michael Aziz, chief distribution officer with Canada Protection Plan, a Foresters Financial company in Toronto. “You have to manage your personal life, kids, parents and work life. Now imagine you get cancer. You have to go for treatments, doctor’s appointments – you don’t have time to support your family.”
In addition to having enough life insurance, Mr. Aziz advises his clients to consider critical illness insurance and long-term disability insurance, financial products that can pay out lump sums in the event of a diagnosis of a critical illness or disease.
“You get into that situation in which the margin of error is very thin and you need that protection,” he says.
Life can be unforgiving when you’re part of the sandwich generation, says Celeste Merey, an insurance advisor with Toronto-based Foster & Associates Financial Services Inc. And if an illness strikes or a layoff happens, decisions have to be made quickly.
“In your 20s, maybe you don’t own a home yet and you can go crash at someone’s house for a while – or you can sell your car,” she says. In your 50s, that flexibility evaporates.
Lillian Huang, a certified financial planner and insurance specialist in Calgary, says she sees middle-aged clients turn to their elderly parents for cash in cases in which family members are laid off or take ill.
“Often, elderly parents who have a nest egg will try their best to support their [adult child’s] family,” she says, depleting their retirement savings in the process.
Ms. Merey says clients with children or who share a household with a loved one have a dire need for term life insurance. The higher the income a client has, the higher the coverage required, she says.
“If your budget is tight, the next thing is [building up] savings,” she says. “After that, we layer in the critical illness and the disability.”
Here are some options to protect against income loss:
Term life insurance: Many of Mr. Aziz’s clients have coverage of $1-million in term life insurance. But he says many realize that amount is insufficient when they undergo a needs analysis. “If you’ve got a $700,000 mortgage, that only leaves $300,000 to take care of everything else,” he says. “And if your parents need help, or you’ll be putting them in a home, that may not be sufficient.”
Critical illness insurance: Critical illness insurance, which protects against certain conditions such as cancer, stroke, heart attack and dementia, can provide a lump sum to cover out-of-pocket expenses that don’t fall under provincial health insurance. Premiums range from $15 to more than $100 a month depending on the amount of coverage and the applicant’s age and health. Critical insurance can be added as a rider on a life insurance policy.
Disability Insurance: Mr. Aziz says many clients falsely believe the benefits and life insurance they have under their employer plan will be adequate. But if an employee goes on long-term disability (LTD), those benefits often drop to 60 or 70 per cent of income, he says.
Worse, LTD benefits may end after two years, Ms. Merey says. “So, then they’re left with employment insurance sickness benefits, which are capped at $668 per week.”
Disability insurance replaces a portion of a client’s income if they go on disability and can help cover expenses during this period.
“For professionals such as doctors, dental hygienists or anyone who is self-employed, they should be looking into disability insurance,” Ms. Huang says. “Because they’ve trained so long and invested so much into their skills, if they can’t do what they’re doing, it’s a huge income loss.”
Beyond considering products such as life insurance and critical illness insurance, Mr. Aziz recommends all his clients build up their savings by investing into TFSAs and making RRSP contributions. But he says that if it comes down to $100 a month toward a critical illness policy versus investing $100 in a TFSA, the client needs to know the insurance may yield a much larger payout in the event of a crisis. Plus, it can prevent the client from having to liquidate their savings and retirement funds.
“It’s all about balance,” Mr. Aziz says. “It’s making sure that you’ve got all your bases covered.”
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