How Multi-Generational Households Affect Life Insurance at a Glance
- Whether by choice or circumstance, more and more Canadian parents and their adult children and sometimes, grandchildren, are living under the same roof.
- While these situations may be as simple as an adult child moving back home to save money, multigenerational households can also often involve significant financial entanglement.
- If an uninsured adult child who co-owns property or contributes financially passes away, parents could be left responsible for the full mortgage or shared debts, potentially jeopardizing retirement savings.
- It’s important to make sure adult children don’t fall into a life insurance gap between still being covered under a child term rider on their parents’ policy and securing their own coverage.
How Canada’s Multigenerational Households are Changing
- In 2021, 7.1 million people — one-fifth of Canada’s population living in a private household — lived in an intergenerational household, made up of parents and their adult children aged 20 and over.
- Ontario boasts the highest rate of intergenerational housing, with more than 23% of the province’s population living in this arrangement.
- An additional 2.4 million people lived in a multigenerational environment, with three or more generations of the same family.
- Both categories have been on the rise in Canada in recent decades — the number of multigenerational households, for example, grew more than 21% between 2011 and 2021. Nearly 46% of young adults between 20-29 also lived with at least one parent in 2021, compared with 32% in 1991, according to The Vanier Institute of the Family.
Young adults in Canada aged 20-29 living with at least one parent
| 20-24 | 25-29 | |
|---|---|---|
| 1991 | 50.5% | 16.9% |
| 2021 | 62% | 31% |
Source: The Vanier Institute of the Family
Intergenerational households form for any number of reasons. In some cases, it looks like adult kids living with their parents to save money during post-secondary school. But as StatsCan notes, it may also be a strategy by parents and adult children to “share resources, manage expenses and provide mutual support.”
Commonly, it can also involve parents purchasing a house or co-signing on a property with an adult child to help them get a foot in the housing market.
In 2021, for example, Statistics Canada found that around one in six residential properties owned by people born in the 1990s were co-owned with their parents. Higher rates of co-ownership between parents and children were found in expensive urban markets like Toronto, Kelowna, Victoria and Vancouver.
In nearly 35% of these situations, parents and adult children co-owned a single property.
Where a Child Term Rider Can Leave a Coverage Gap
Not all households need coverage for adult children. Coverage gaps are defined by potential insurable losses and a lack of sufficient coverage to handle those losses.
A child term rider can be added to some life insurance policies. If one of the covered children dies while the rider is in effect, the rider pays a certain amount of money. Details vary by policy, and there are no industry-standard age limits, death benefits or conversion rights.
Read More: Review Life Insurance Plan Options for Families
Read These Rider Terms Before Making a Decision
| Contract field | Question to answer from the policy |
|---|---|
| Covered child | Which biological, adopted, step or dependent children meet the definition? |
| Entry and end ages | When does coverage start and end? |
| Student, dependency or disability rules | Will the rules on status affect the eligibility criteria or proof required? |
| Benefit and exclusions | How much money will be paid, to whom, and subject to what exclusions? |
| Premium | Is there one premium for all eligible children, and can this amount change? |
| Conversion | What are the requirements, evidence, deadline and limit? |
| Ownership and beneficiary | Who has the right to control the rider or converted policy, pay premiums and receive benefits under it? |
Always ask the insurance company or agent to show you the answer to each of these questions in the rider. The summary is not the contract.
Read More: See How Dependent Life Insurance Works
What are the Financial Risks of the Coverage Gap?
Whatever the reason for putting off buying life insurance, this gap can lead to problems down the road for families.
A delay in securing adequate life insurance by an adult child can leave parents in a financial jam if the adult child passes away — especially in cases where they co-own a home together or where the adult child has taken on financial responsibilities in the family.
In this situation, parents who are co-borrowers or guarantors may have to carry the remaining payments or refinance, depending on the loan and estate arrangements or take on bills on their own, without the benefit of a life insurance payout, which could put their own retirement savings at risk.
Waiting to apply for life insurance can also be costly. Age and health are among the factors insurers may use to calculate premiums, but generally, younger, healthier people can lock in lower rates — so while procrastinating might seem like a budget-friendly option now, it can be a pricey decision later.
Options Before a Child Term Rider Ends
- If converting, make sure you can and that the type, amount, timing and premium fit your needs.
- If purchasing an individual term insurance policy, apply for an amount and term for which you have a need, though your application may be denied.
- If purchasing a permanent insurance policy, be able to show a permanent need and afford the premium.
- If there is no significant financial loss to anyone, additional insurance may not be needed.
- If something changes, such as co-signing a loan, having a baby or grandma moving in, rethink your insurance needs.
Read More: Read the Life Insurance Guide for New and Expecting Parents