What is your value and how can you protect it?
In the school yard recently, waiting for the bell to ring, I was talking with some other parents. I mentioned that I was reviewing my personal insurances as we’ve bought a new house. One mum exclaimed she was not insured as she is not worth anything. And so, I embarked on my 5-minute run-down of her value to the household…
Whether you are working part-time, full-time, or not at all, mothers are a valuable asset for any household and one worth insuring.
When undertaking an insurance needs analysis for clients, we consider various financial impacts, such as caring for someone who is sick or injured (nursing costs) or caring for children and running the household (childcare, cooking, cleaning costs etc). These can all have a monetary value assigned to them and should be considered a need in the case of various insurable events.
There are four key personal insurances you can apply for;
- Income Protection (IP)
- Total and Permanent Disablement (TPD)
- Trauma (also known as Critical Illness)
Income Protection and Total and Permanent Disablement Insurances
The first two (IP and TPD) are related to your inability to work, and therefore can be affected by any move in or out of the (paid) workforce.
IP insurance provides replacement income when the insured is unable to work to earn an income. In the case that you are not in paid employment, you can still have income protection insurance and your inability to work is based on what are considered “household duties” or “activities of daily living”. Each policy provider has different specific definitions, so it is paramount that you read all documents before signing; but in general, such definitions include consideration of cooking and preparing meals, cleaning the house, shopping for groceries, and looking after children.
As TPD insurance is also related to the insured’s ability to work or live, the above definitions can also apply.
It is important to note for those temporarily not working (e.g. on maternity leave), if you make changes to your IP or TPD insurances during this time, you may have the “work/ activity” definition that applies to you/ your policy changed. To this extent, there can be merit in ensuring your personal insurance policies are in place before you take any time off work.
Life insurance is arguably the easiest insurance to understand. The beneficiary of the policy gets paid when the insured person dies. The payment amount/ level of cover should then be a consideration of what the remaining spouse will need financial assistance for when their partner is no longer there. Key considerations fall to repaying the mortgage, providing for care of young children or school fees for older children, and any funds needed to ensure the household can continue to function without the deceased.
Trauma insurance, also known as Critical Illness insurance, is designed to pay you a lump sum in the event that you suffer a specific illness or injury, such as a heart attack or stroke, that may not leave you disabled long-term but is traumatic at the time of occurrence. Treatment and recovery can be life-changing and costly. I would argue that most working mums get stressed about the idea of taking one or two days off work to look after a sick child, let alone if they themselves are sick. But if something really nasty occurs, the likes of Trauma insurance can help cover the costs of getting help around the house or taking time off work whilst you are focusing on yourself when you need to the most.
The idea of personal insurance is to provide some financial support in the event of you not being able to do it (this crazy life) all yourself. A review of your personal insurance needs by a qualified financial (risk) adviser can assist in putting a value on you and what you bring to your family life – it might just be a bit less than that ‘priceless’ tag your children put on you!
Disclaimer: Any advice included in this article is general and has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider its appropriateness having regard to these factors before acting on it. Any tax information refers to current laws, is not based on your unique circumstances and should not be relied on as tax advice. Before you make any decision about whether to acquire a certain financial product, you should obtain and read the relevant product disclosure statement.