There are many challenges young families face such as figuring out how to manage finances, work, debt, and plans for the future. Add babies into that mix and there’s a lot to consider because babies are just as expensive as they are adorable.
Celia is a 32-year-old practice owner and married to Charlie, an accountant. Both are responsible professionals and are big planners. When the couple started to think about growing their family, they sat down with a Certified Financial Planner® professional to talk over how their financial plan should be adjusted and how they could prepare financially for the cost of raising a child which is estimated to be between $10,000 – $15,000 a year until the age of 18 in Canada.1
On the advice of their financial planner, both Celia and Charlie started contributing to low-risk investments in their tax-free savings accounts (TFSA) because a redemption would have no taxable impact and could be used to cover part of Celia’s income in preparation for the period that she would be off work. They also talked about setting aside funds in a taxable account invested in a money market fund which provides low risk funds that invest in short term, highly rated debt.
Their advisor walked them through all the options, including using their line of credit, setting up an annuity or even taking a policy loan through Celia’s whole life policy.
How the CDSPI Office Overhead Expense Insurance can help
However, the couple was thrilled when their advisor told them that Celia’s CDSPI Office Overhead Expense (OOE)2 insurance, would cover a portion of her practice overhead while she was on maternity leave. After the birth of her child, she would be eligible to receive benefits for up to 15 consecutive weeks following a two-week waiting period.2 Celia could receive up to half the monthly coverage amount of her policy, or the EI maximum for her province, whichever was less.
Celia would receive benefits because she had OOE coverage for more than 12 months before her child’s birth. The revenue from a locum (a dentist who temporarily fulfills the duties of another who is on leave) would cover part of her office expenses, and OOE would pay a portion of her eligible office expenses while on full-time maternity leave equal to the employment insurance maximum of her province of residence.
The Maternity Leave Benefit is a unique feature that recognizes important lifestyle changes. It’s one of the many features that make the CDSPI Office Overhead Expense policy a preferred choice for dentists.
Other Options to Consider
Contributing to Employment Insurance (EI) benefits for self-employed parents, may add to your income stream while on maternity leave. As a self-employed dentist you may receive maternity leave benefits under Canada's special benefits employment insurance (EI) program. More specifically, if you are planning on starting a family or recently found out you are expecting a child, you can elect to make employment insurance contributions on your income. However, before you can start collecting maternity leave benefits, you need to pay into the fund for at least 12 months. This doesn't disqualify you from benefitting from the program. It just means you won't be able to collect payments until your baby is a few months old. In fact, you can only claim standard benefits in the first 52 weeks of your child's life. So, participating in the program late will have an impact on your benefits.
There is also a caveat to this program--once you start making EI contributions as a self-employed dentist and start collecting employment insurance benefits, you will need to keep paying into the fund for the rest of your self-employed career.
If a dentist were to become unemployed, and had contributed to the EI program, they may be eligible for the regular EI benefit (whose terms may vary depending upon province of residence). Although it is a federal program, it is provincially administered and is tilted to provide longer benefits to provinces that have higher instances of unemployment. From a personal taxation standpoint, the premiums paid will provide a tax credit for the personal income tax return. The benefits are fully taxable as income and the government may not withhold taxes from benefits paid (EI recipients may owe income taxes that must be paid when they file their returns).
So, if you plan on having more children or working full-time as an employee, it’s a good idea to have the discussion to make sure that paying into the employment insurance fund is right for your situation.
Talk to your financial advisor about this option and they can explain the tax implications, compare the various scenarios, and advise whether this is right for you.
Some Final Thoughts
Your list of things to discuss with your Financial Planner doesn’t end with your income. Have you made a will or a trust? When you have a dependent, it’s vitally important that you appoint a guardian for them in your will and add your child(ren) as beneficiaries to help secure their future should anything happen to you and the other parent. This is the best way to legally ensure the care of your child(ren) is addressed according to your wishes and your assets are protected.
Regardless of where you’re at financially, it’s never too early to look at both the short and long-term plan for your family. A growing family is just one of many changes that will occur throughout your career. When that happens, your financial plan needs to keep pace. Speak to an Advisor at CDSPI Advisory Services Inc. about any changes happening now and in the future. We’re here to help!
2Complete terms, conditions, exclusions, restrictions and limitations governing the coverage is found in the insurance contract.
The above information should not be considered personal financial, investment, taxation, legal, accounting or similar professional advice. For specific advice about your situation, please consult a tax, accounting, legal or financial professional.