Baby bump – EI assistance for expecting parents

Informed use of employment insurance with a new child on the way

The decision to have children is as personal as it gets. But as impersonal as it may sound, one of the first considerations in deciding on a family expansion, is determining its impact on family finances. This means not just being ready to bear the cost, but also the potential reduced income.

At least at the start, the EI system offers some help to new parents.

Managing your expectations – Not full income replacement

Any way around it, you will be receiving less if you are not working. The general rule of EI is that is designed to replace 55% of your average weekly earnings, up to the maximum yearly insurable amount, which is presently $63,200 in 2024. That equates to a maximum of $668 per week, or less if your own income is less than that prescribed maximum. Either way, just like employment income itself, EI payments are taxable.

The general qualification requirement is that you need 600 hours of insurable employment in the 52 weeks preceding the claim. This criterion also applies to those applying for maternity and parental benefits (discussed below), in addition to showing that your regular weekly earnings from work have decreased by more than 40% for at least one week.

Types of benefits

Maternity benefits – For the expecting mother

This is for biological mothers, including surrogate mothers who are away from work due to pregnancy or a recent birth. It runs for up to 15 weeks, beginning as early as 12 weeks before the expected date, and may continue as far as 17 weeks after the due date or the date of birth, whichever is later.

As with general EI, it applies at a 55% benefit replacement rate, again up to the current prescribed dollar maximum (indexed annually) per week for the benefit period.

Parental benefits – Relief time that can be shared by two parents

Parental benefits are available to one or both parents of a newborn or newly adopted child. Both parents may be receiving benefits at the same time, or they may take them at different times. For a biological mother, application may be made for both the maternal benefit and parental benefit at the same time, allowing for seamless continuity from one benefit to the other.

Benefits may begin the week of the date of birth, or the week of placement in the case of an adoption. Benefits are available/measured in weeks, but do not have to be taken consecutively, allowing parents to start and stop according to their circumstances. There is a time limit by which all benefit weeks must be taken, based on either the standard option, or the extended option that pays less for a longer time:

- Standard parental option – All benefit weeks must be taken within 52 weeks (being 12 months)
- Extended parental option – Benefit weeks may be taken for as long as 78 weeks (being 18 months)

Once an option has been chosen and paid to either parent, the clock starts running on that time limit. As well, the option cannot be changed after payment begins, and the other parent must use that same option.

As between them, there is a maximum number of weeks any one parent may claim, being 35 for the standard option and 61 for the extended option. This condition accompanied the increase in the number of benefit weeks from 35 to 40 weeks and 61 to 69 weeks for the two benefit options respectively, as announced in the 2018 Federal Budget. The purpose of this condition/limit is to encourage more equitable sharing of parental responsibilities.

Further key details of both parental options and the maternity benefit are shown in the table on the following page.

Summary table by type of benefit
– For 2024

Personal savings strategies to get you to and through baby’s arrival

Inevitably a new child means new costs, though some lifestyle expenses may drop off as your time and attention are diverted. The net cost may be ambiguous, but most certainly your income will be less. The prudent course is to establish a savings routine early on:

1. As soon as you decide or become aware of your new addition, sit down together as parents-to-be and review your financial picture, ideally with the assistance of a financial advisor. While you may have managed without a budget in the past, parenthood will be extra difficult to navigate without good financial organization.
2. Inform yourself about the kind of products and services you may need during pregnancy and after birth/arrival. You can start by asking your own parents about their experiences, but be sure to update to the present. Beyond allowing for cost inflation over the intervening generation, educate yourself on current nutrition and healthcare practices, and safety devices (e.g. sleeping furniture, car seats), both legally-mandated and as recommended by recognized experts. Also, be cautiously skeptical about any gadget offerings you come across, some which may indeed save time and money, and others that may make you net worse-off for using them.
3. Arrive at a reasonable target for your planned weekly spending once baby arrives, and think carefully how long you will be away from work. On the income side, remember that the most you will receive from EI is just over half of your working income, and at a time when new expenses often crop up. Total up the potential weekly shortfall and multiply by the number of weeks you expect to be away from full-time work.
4. Divide the total shortfall above by the number of weeks from the present until you plan to begin your maternity/parental leave. That will tell you how much to save each week to accumulate exactly enough to carry you through the post-arrival time period. Don’t panic if this is a stretch. Rather, use it reinform your assumptions and intentions, and if necessary to motivate you to identify other savings sources to tap into.

‘No charge’ for mom – Are you insure about that?

The economics of a mom’s love

There’s an old country song “No charge”, made famous in Canada in the 1970s when Tommy Hunter recited it on an episode of his CBC TV show.

While a mother is preparing the family dinner, her young son comes to her with a piece of paper. On it is a list of chores and charges, and a tally: $14.75. She pauses, wipes her hands on her apron and takes up a pen. She turns the paper over and lists all the acts of motherly love from childbirth to sleepless nights and kissing bruises, writing “no charge” next to each.

Well, with tears in his eyes, the son looks up and says, “Mama, I sure do love you.” Then he takes back the page, and in big letters writes, “PAID IN FULL.”

Identifying and measuring unpaid work

It’s a blatant pull at your heart strings – as a good country song is wont to do – but at the same time, there is truth in those words.

Time spent on unpaid household/family activity

Every few years Statistics Canada publishes a series of research papers on Women in Canada.[1] From its 2018 report, here are some key observations on the economic well-being of women:

- Women are more likely than men to participate in housework activities, and they spend more time doing so.
- Both mothers and fathers spend more time on childcare than thirty years ago, but women have increased their time with children to a greater extent than men.
- A greater proportion of women than men perform routine childcare tasks on a given day, and spend more time doing so.
- Women are overrepresented as caregivers to adult family members or friends, particularly when the care recipient has a long-term health condition or a physical or mental disability.

This is a big picture view of the relative amount of time spent by men and women, and how it has changed over the years – and in some ways how it hasn’t. Apart from the time aspect, can we put a dollar value on this?

What if mom was on a salary?

Each year around Mother’s Day, the website salary.com publishes an estimate of what a mom would earn if paid in the open market. While acknowledging that it cannot assign a value to all features of parenthood, the site draws from about three dozen job categories to represent the core competencies of motherhood. Its most recent estimate of median annual salary for a stay-at-home mom is US$184,820. And as if it’s necessary to point out, the figure is even more compelling when converted to Canadian dollars.

Of course, this is mainly a promotional exercise for the website and its services, but it helps illustrate the wide breadth of a mother’s contribution to the family, on top of it being unpaid.

The paid work picture

The Statistics Canada research notes that, “historically, women’s financial security has been closely tied to their familial relationships with men.” This is looking back from the mid 20^th century, referring to a woman’s father while she was growing up, then her spouse/common-law partner as she moved into adulthood.

Progress over the decades

Labour force participation of women increased from the 1960’s, at the same time as women were gaining more access and control over household resources. Since then, women’s economic well-being has evolved dramatically, again as compiled by Statistics Canada:

- Women’s average personal income more than doubled in constant dollar terms from 1976 to 2015, with the gender disparity in income being cut in half over that 40-year stretch.
- Women’s earnings make up a larger share of family income than ever before. In families with a working woman in the core working ages of 25 to 54, the woman contributed 47% to the family’s income in 2015.
- Women’s workforce participation has enhanced the security of couple families. These families are more resilient to the rising cost of living, downward wage pressure for men, and unemployment generally.
- Dual-earner families are also better protected in recessions, with women experiencing fewer job losses due to their larger representation in non-cyclical sectors such as education, health care and government.

For her, and those around her

These trends in women’s work participation and income growth are self-evidently beneficial to affected women personally. As well, society overall is better off, both in the social sphere and in the economic benefit of the fuller participation and contribution of women. And finally, spouses and families are able to enjoy more abundant, diversified and stable financial lives.

And without mom? – The role of life and disability insurance

There is plenty that can be learned from the Statistics Canada research and other sources about the state of women in our society. It can and should motivate individual and collective action toward greater gender equality.

For current purposes though, let’s look at what this means at the individual or family level. In particular, what economic hardship will befall a family if mom dies or becomes disabled, and where does insurance fit in?

Loss of income source

While life and disability insurance have many uses, their primary purpose is to replace lost household income. The positive progress in women’s employment and income over the decades provides both direct and indirect evidence of why and how much harm may be inflicted if tragedy hits. There’s double damage in the case of disability due to additional cost of care, and of course it’s especially devastating for a single mother family.

The obvious direct impact is the actual income that is no longer coming in. The less obvious part in the case of a dual-earner family is the loss of stability and diversification. Though it may not be easily quantifiable, it would be helpful for a couple to anticipate how the death or disability of one of them could affect the practical and financial viability of the survivor’s continuing occupation.

Loss of that unpaid labour

This brings us back to all that time mom spends on unpaid household/family activity. In mom’s absence, some of those tasks may be replaced by bought services, but money is no proxy for a parent’s presence, love, affection and attention. To continue to fulfill that role, dad may need to change his work routine, and possibly even make some broader career adjustments.

In this respect, in addition to replacing mom’s lost income, insurance can also stand in for the reduced income dad may experience due to increased caregiving demands. Whether this is a temporary measure or a permanent new normal, the family is given the time to grieve, heal and look to the future in financial security and comfort.

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[1] Women in Canada: A Gender-based Statistical Report
https://www150.statcan.gc.ca/n1/pub/89-503-x/89-503-x2015001-eng.htm

Insurance and your child

Protecting the lives of your family, for the lifetime of your family

There is nothing more devastating to a parent than to have a son or daughter predecease them. We expect to raise our children to go out into the world, so witnessing their departure from it prematurely is not something a parent expects to be dealing with. It’s called a death out-of-order for good reason, as it does not fit the natural order of things.

Even so, the suggestion to obtain life insurance on a child can be unsettling to a parent. After all, the primary purpose of insurance is to replace lost income. The child doesn’t support the family; the parent does. To some, insuring a child may seem like a gamble for a payout upon a tragic and unlikely event.

However, the reality is that a child’s death can have significant consequences for the entire family. Insurance can provide the time, space and resources for people to heal. And in the more likely scenario where misfortune does not occur, it can then be a valuable tool to give your children a financial head start in life.

Financial cushion for recovery

Beyond the initial shock and expense of dealing with the loss, parents will need time to grieve. While many employers provide bereavement leave, it may not be enough for many parents to adequately recover.

With insurance acting as an income bridge, parents could choose to spend more time away from work until they are truly ready to return. Or for parents who run their own business, insurance could be used to sustain operations in their absence, for example to fund employee overtime, hire temporary staff or otherwise provide a cash infusion while activity slows.

And while this extended time is a welcome reprieve, it does not in fact heal all wounds.

Both parents and siblings of the departed child will have their own ways of coping. Some may be comfortable leaning on one another or confiding in friends, while others may need more. Insurance can help with the cost of professional counselling, allowing each family member to take whatever time they need and to use whatever process suits them best.

Types of insurance to choose from

Once a parent sees how insurance can help them manage such traumatic circumstances, the next consideration is whether to use a term or permanent policy. Term insurance is intended to last for a specified number of years, whereas permanent insurance is expected to be held for life. In either case, the insurer’s premium cost is based largely on the low risk of death of a young child, which in turn helps make it affordable for parents.

Generally, the least expensive option is for a parent to add a child term rider when they purchase their own insurance policy. Most insurers offer this coverage on a child up to a certain age, usually 25, at which time it is normally then convertible into permanent coverage.

Alternatively, the parents could choose permanent coverage right away, commonly a term-to-100 or whole life policy. Of the two, term-to-100 is lower cost, but whole life is often preferred as it can generate annual dividends that build its cash surrender value over the years. What’s more, that growth is tax-sheltered.

Tax-sheltered savings for education and more

Far and away, the greater likelihood is that a child progresses through their youth to become a thriving young adult. In that case, parents may wonder whether those past insurance premiums are a lost cost. The answer is that the financial cushion discussed above is only part of the case to be made for obtaining the insurance.

Built on that foundation, insurance can be an effective tool for a child’s own future financial needs. A familiar strategy is to use the tax-sheltered cash surrender value of a whole life policy to complement a Registered Education Savings Plan (RESP) for post-secondary education.

As policyholder, a parent could withdraw part of the cash value, arrange a policy loan with the insurer, or pledge the policy as collateral for a loan from a separate lender. An appealing part of the withdrawal option is that there is no interest charge in comparison to the loan options. On the other hand, if a large withdrawal is taken, it may be partially taxable. Even here though, there is a way to get some relief.

An income tax rule allows a parent to transfer a policy on a child’s life to that child on a tax-free basis. If the child then makes a withdrawal while over age 18, it is the child who will bear the tax, if any. Assuming that the child is a student with minimal income at the time, it is likely that there will be little or no tax to pay. It is also worth noting that money coming out of an insurance policy may be used for any purpose, not just for education.

For a child’s own future family

As children move further into adulthood, they will take on greater responsibilities, including having their own families. Like their parents, these new adults will have financial obligations to those families.

Insurance established in those early years and transferred to the child can now be used as a safety net for the new family. Of course, the amount of coverage needed will be larger than the original amount on the policy, so additional coverage may be sought.

But what if the son or daughter becomes disabled through an accident or develops a severe medical condition? How would that affect the policy? Fortunately, the insurance established in those early years may continue, even if there is a later diagnosis that makes the person uninsurable thereafter. As well, many insurers offer a guaranteed insurability rider to their policies, allowing future increases in the amount of insurance (within limits) without having to prove medical eligibility.

As these examples show, life insurance is not merely on a child’s life, but can be for a child’s life. It is a way for parents to preserve and pass on family values, both in financial sense and in sharing their beliefs.