The value of unpaid work in the home is often overlooked and can sometimes be forgotten when putting insurances in place to safeguard your family. If you have a partner who works part time or not at all and they are not insured, your family™s future may not be as secure as you think.
Even if you or your partner do not earn any income, you both support the family. If a non-working parent dies or is disabled the family may need to increase spending on childcare, cooking, cleaning and other household tasks that were previously done out of love.
The cost of employing people to provide childcare and domestic services can easily add up to around $600 a week, depending on the age and needs of your children. This needs to be taken into account when you sit down with your partner, and your financial adviser, to work out your family™s total insurance needs.
The insurance gap
It is not hard to find a typical Australian family with life insurance needs of between $750,000 and $1 million, yet Rice Warner Actuaries estimates that life insurance cover in Australia is 49 per cent less than it should be. Part of the reason for this gap in coverage is the under-insurance of non-working spouses.
Life insurance serves two main purposes; to pay off your debts if you die prematurely, and to leave a lump sum that can be invested to produce income for your dependents so they can continue to enjoy their current standard of living.
In addition to life cover, you also need to think about how your family would cope if you or your partner was seriously ill or injured. Even if you are the sole breadwinner and think the family could continue to live on your income if your partner was seriously ill or disabled, you need to factor in the extra medical costs not covered by health insurance.
Income protection is recommended if you are in the paid workforce but it won™t cover a non-working partner. However, total and permanent disability (TPD) insurance and trauma cover may fill that gap.
TPD policies typically pay a benefit if you are permanently unable to work in your own occupation, or any occupation. But some policies include a homemaker definition, allowing a claim if you are permanently unable to perform your regular domestic duties, leave home unaided, and require ongoing medical care.
Protection against serious illness
Trauma cover may provide an alternative to TPD for non-working spouses and pays a lump sum if you suffer a serious illness such as heart attack, cancer or stroke. Your policy will spell out exactly which diseases and conditions are covered.
Rice Warner estimates the overall insurance needs for young parents aged 35 with two kids on average household earnings are roughly $750,000 of life insurance cover, $670,000 TPD cover and $4,500 a month of income protection.
As a rule of thumb, Rice Warner estimates the cover for a partner who works part-time or not at all should be roughly half that of the primary wage-earner, but the exact amount will depend on your income, age, number of children and lifestyle requirements.
Case Study - Joe and Kate
Joe and Kate are in their late 30s with three young children.
Joe is a manager at a large consulting firm and earns $150,000 per annum, with comprehensive insurance coverage provided by his employer. His wife Kate is currently taking time out from her job as an events manager to look after their three small children.
While undergoing a routine examination, Kate was diagnosed with an aggressive form of ovarian cancer. Even with months of intensive treatment, the prognosis was not good. She fought every step of the way while her family prayed for a recovery. Tragically, she did not win her battle and died within a year.
While the couple understood the importance of insuring Joe as the primary provider, they had not considered insuring Kate™s essential role as the homemaker. For Joe™s family, the shattering loss of Kate was made much harder by the financial burden of paying someone to maintain the household and provide care for the children.
With a combination of life and critical illness insurances, a family like Kate and Joe™s may have received a lump sum that could be invested and used to defray the increased costs over the coming years.
