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.

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.

Intestacy? For those you love, make a Will

Complications and costs of an un-planned estate

Recently, I was invited by a financial advisor to meet with a young mother of two whose husband had, in a matter of weeks, gone from diagnosis to death – and there was no Will. I’ve had that same meeting a half dozen times over my working life.

You may find it shocking for me to be so blunt in saying so, but that falls well short of the emotional pain of becoming a widowed parent of toddlers, trying to keep the household together financially, and plodding your way through an intestacy. It’s devastating enough to deal with a close death, without that added uncertainty, paperwork and excess stress.

So, to the question of when someone should have a Will, my unhesitant response is that if you ARE an adult then BE one – and make a Will. If not, here’s what may be ahead for your family.

Purpose of a Will, and effect of intestacy

A Will allows you to say who will receive what you own at the date of your death, in what proportions and with appropriate strings attached if you wish.

Without a Will, the provincial/territorial rules of intestacy – meaning the absence of a valid Will – will dictate who among your family (or more distant relations) will receive your property, and in what proportions. Unfortunately, that distribution would be without the benefit of your legally binding wishes, let alone any final thoughts or moral guidance you may have wanted to impart. The exact rules vary by jurisdiction, but generally:

- Spouse and no children – Entire estate passes to the spouse
- Spouse and child or children – Spouse commonly receives a legislated minimum amount, and the rest is distributed between the spouse and child/children, with the spouse getting the largest portion
- Child or children – Each will get an equal share
- No spouse or children – The rules expand outward to parents, siblings and other blood relations
- No blood relations – The estate will likely end up with the provincial government

Note that intestacy does not supersede property passing by right of survivorship when held jointly (with anyone, not just a spouse), nor does it affect beneficiary designations on registered plans and insurance policies.

Extra stress for common law spouses

Depending on province/territory, a common law spouse may be excluded from estate distribution if there is no Will, or require a prior registered notice to qualify for a share of the estate. For the purposes of entitlement to intestate distribution, the term “spouse” applies to:

- Only legally married persons in Ontario, Quebec, New Brunswick, Newfoundland & Labrador, and Yukon.
  (In Yukon, a common law spouse may apply for a court order for support and maintenance from the estate.)
- Both legally married and common law spouses in British Columbia, Alberta, Saskatchewan, Manitoba, Prince Edward Island, Nova Scotia, Northwest Territories and Nunavut. (In Nova Scotia and Nunavut, registration of common law status and/or filing of a domestic contract may be required.)

Adjusting unintended or unexpected distributions

Even when people are legally married, an intestacy invariably puts the surviving spouse in a difficult position. Rather than the entire estate passing to the survivor (as is most often the expectation), the children may gain property rights alongside their parent. If the children are adults and all get along, that may be manageable. If there are minors and/or past conflict, then further complications and anguish may be ahead. The age of majority is 18 in six provinces: Alberta, Manitoba, Ontario, Prince Edward Island, Quebec, and Saskatchewan. The age of majority is 19 in four provinces and the three territories: British Columbia, New Brunswick, Newfoundland, Northwest Territories, Nova Scotia, Nunavut, and Yukon.

Possibly, the spouse could take steps to force a different distribution, for example by electing under the jurisdiction’s family law to treat the death as a legal separation. Though this may be a practical and arithmetically justified step, it can be emotionally tough to come to this decision (in addition to possible social and cultural discomfort the survivor may feel), and even then it will seldom result in all the assets being back with the spouse.

And as challenging as things may be where the surviving spouse is the parent of the children in an intestacy, any conflicts of interest could elevate to conflicts in reality in second marriage and mixed family households.

Supporting your children in vulnerable circumstances

Beyond the matter of transferring property between you as spouses, as parents you also have to think the unthinkable of what happens if you both die, whether at once or in short succession.

Transferring property to children can be complicated. A trustee will be legally required for minors – which you could have done by Will, but which instead will probably require a court order in an intestacy – and even young adult children can use support and guidance. It requires careful thought to decide how best to structure a trust, what powers to give the trustee, how things will be accounted for, and ultimately who is best suited to the job. You missed out on your opportunity to give those instructions if you didn’t make out a Will.

Equally important, such a traumatic time is when children need a stable family structure. You want them to have an emotionally supportive home, surrounded by extended family and a social setting that allows them to build fulfilling lives. To the point, your Will is the last word you can offer on guardianship, so its contents and the conversations leading up to its execution are fundamental to your role as a parent.

Having ‘enough stuff’ is not the criterion

You may feel you don’t own enough to be bothered, but eventually you will (often without you noticing), and sometimes rights and claims arise as a result of an untimely or accidental death. And really, it’s not so much about the things you own, as it is about properly caring for the people you love, particularly those who are financially dependent on you.

Even if you’re young and penniless, think of the parents and the family from which you came. When a child dies first, it can be crushing to parents, whether that child is under their roof or has set out into the world. Such a ‘death out of order’ can be emotionally, socially and even physically paralyzing for parents. A minor child can’t do anything to provide relief in such tragedy, but as an adult you can make a Will to assure that the estate can be managed as efficiently as possible, helping your parents to begin dealing with their grief.