There is an insurance policy that people can take out that replaces their income in the event they are unable to work for a period of time, due to accident or illness. It’s called Permanent Health Insurance (PHI)
If you are unable to work, and after a deferred period elapses, the policy will pay you a monthly income up to a maximum of 75% of your previous salary, minus any social welfare payment.
This type of insurance is often made available and paid through employer funded schemes as well and it is a very important benefit to have in place. Without an income and without being able to work to earn one, you are going to struggle financially.
When you think of this type of policy, you automatically assume it only applies to people in employment, where a salary is paid into their account each week or month.
But what about people who don’t earn an income? I am thinking of stay-at-home mothers and fathers in this instance. The most recent figures available from the Central Statistics Office show there are approximately 340,000 people working in the home, with c. €230,000 of them having children. What would happen if they became sick or suffered an illness that prevented them carrying out the everyday tasks we take for granted?
What impact would it have on the household finances? Is it as important that their “income” be protected as much as their partners?
A homemaker may not have a salary lodged into their account every month, but it doesn’t mean they don’t earn an indirect income for their household either. According to a recent survey, a homemaker works an average of 94 hours each week, and if you were to put a monetary value on what they do, how much do you think it would cost to replace them?
US website salary.com and insurer Royal London carried out surveys to find out how much a homemaker is worth; that is how much would it cost to replace them in monetary terms. So they put a value against the ten most time-consuming tasks listed by homemakers.
The results were incredible, but let’s first look at some of the roles they undertake each day and what cost is associated with each.
Preparing meals is one of the most time-consuming tasks of any homemaker. There is a lot of planning, preparation and cooking to be done and according to Royal London’s findings, they estimate the average homemaker spends 15 hours each week cooking. So, if you were to hire someone in, to replace them in this instance, budget for about €600 per month.
My wife Roseann feels her life during the week is spent in the car, ferrying our children back and forth to school, to friend’s houses, to after school activities etc.
Again, if you were to put a time spent on this activity for a typical homemaker, it is estimated it accounts for about 15 hours of their working week. The cost of hiring a driver for a week, to replace the homemaker would cost about €150 based on €10 per hour for 15 hours, so there’s another €600 each month you would have to fund and pay someone else if your stay at home partner was unable to.
If you had to employ a childminder, the average daily rate is €40; employ a full time live-in nanny from 8am to 6pm Monday to Friday, and you will have to pay between €500 and €600 per week. Iif you opted for an au pair, the cost to the family each week would be c. €100.
There are many other areas, way too many to go into detail here, that a homemaker carries out, like tutoring homework (estimated time spent here is 20 hours and cost to replace same is €380 per month); cleaning (estimated time spent on this is 40 hours per month. The average cost of a cleaner is c. €9 per hour so 40 hours per month costs c. €360 per month)
So, when you add up the total cost to employ someone in Ireland in 2016, to carry out the household jobs normally carried out by a stay-at-home mum or dad, it could add up to around €41,719.60 per annum.
It’s all well and good to protect the income earner of the household, but we also have to consider the financial impact if sickness or injury was to happen to the stay-at-home parent. Now that you know how much you would need to pay, could you afford to hire a replacement?
It is clear that the impact of an injury or illness and the financial strain it would have on the family unit is huge. Thankfully, insurance companies have now begun selling products specifically for homemakers. One company is offering an income protection policy for home makers and unpaid carers, where cover of up to €15,000 per annum can be provided.
The cost of a policy covering €15,000 per year until age 65 for a 35-year-old non-smoker male or female, with a deferred period of three months costs c. €41.10 per month.
So in this instance, for €41.10 per month you could provide your family with an income of €288 per week. And whilst the level of cover might seem low compared to the costs you might incur as I just outlined, it is something to consider and not to be ignored.
I really believe the monetary cost of replacing a stay at home parent should be factored into every household’s financial plan.
Liam Croke is MD of Harmonics Financial Ltd,
based in Plassey. He can be contacted at email@example.com or www.harmonics.ie