When it comes to personal insurances and protecting the family unit financially, most of the focus is usually on the value of the breadwinner. A deeper analysis, however, shows that a homemaker’s contribution is sometimes undervalued and consequently left underinsured.
A significant proportion of families still choose to have one partner remain as a full time homemaker. While they may not be generating income, it is important to recognise their value when planning financial security strategies.
Defining the homemaker’s role is the first step
To understand just how valuable a homemaker is in practical, emotional and financial terms, just think of the all the functions that they perform.
Children tend to be a major focus for many homemakers, whether it is driving them to school and other activities, helping with homework, or providing a listening ear and a source of guidance and encouragement.
Beyond the children, the homemaker often fulfils many practical functions in running the home, such as shopping, cleaning, washing, gardening and home maintenance. There is also the need to provide food for the family.
Managing the household budget is also often left to the homemaker and this requires time and attention to ensure bills are paid, banking is done and spending is kept in check.
What if they are not around to do it all?
It is relatively simple to calculate the financial worth of a breadwinner, based on their income earning potential. The impact of a losing homemaker, however, is not quite as easy to quantify in dollars and cents.
The reality is that a homemaker also faces risks of misfortune. Illness may strike at any time, a car accident or fall could cause injury and there is also the possibility of premature death. If such an event occurs then the family could be left with very real and significant challenges in trying to replace what the homemaker was doing.
What would the family do to adjust?
There are different options for how the family can cope with the loss of a homemaker’s contribution. One scenario is for the breadwinner to leave work or work part-time so that they can take on the homemaker’s role. This may be the most desirable option if there are young children involved. Another approach may be to employ hired help, such as a housekeeper.
A combination of both these options may also work, perhaps with the help of family and friends.
Whatever choice is made, it may cost a significant amount of money, either in foregone income or in hiring help, to replace the homemaker.
What can be done?
While homemakers are not eligible to take out income protection, there are other protection options that have the potential to offer substantial financial security.
Trauma insurance can offer a cash lump sum payment that is available on diagnosis of a range of specified major health conditions. Depending on the policy this may include heart attack, stroke and cancer. These funds could be used to allow the breadwinner to reduce working hours, leave work altogether or to pay out debts.
Life insurance may provide lump sum cover in the case of premature death or terminal illness, as defined in the relevant policy and the sum insured can be as much as is needed to give the surviving partner the freedom to make their own choices about how children will be cared for and how the home will be managed.
Total and permanent disability (TPD) insurance can be added to the life cover to provide a similar lump sum of cash in certain specified circumstances if the homemaker suffers an injury or illness that prevents them from ever being able to carry out their role.
If you want to properly quantify and insure the value of the homemaker in your situation, your adviser is ready to help.