A fortnightly pearl of wisdom to fast track your success
Chrisism #93 - Mum/Homekeeper Cover
18 June 2019
When sitting in front of a breadwinner with a definable earned income, it is not hard to put a dollar figure on the value that person represents to the family unit, thereby enabling a calculation of the level of cover that might be required in the event of that person no longer being around.
However, when sitting in front of a Mum or Dad/Homekeeper, the dollar value that person represents to the family unit is not so cut and dried, so what I’m going to do in this Chrisism is share with you what process I went through with my clients in order to arrive at an appropriate level of cover for a non-working Mum or Dad/Homekeeper – and although in this day and age there are plenty of Dads fulfilling this role, for the sake of this Chrisism I am going to assume that the non-working spouse is the Mum.
So this is what I would say to the breadwinner in this regard:-
“So having addressed the ‘what if’ scenario for yourself, what we now need to consider is the ‘what if’ scenario for your wife and the mother of your kids. So if something happened to your wife that prevented her from performing her duties as Mum and homekeeper (be it serious illness or injury or worst case scenario premature death), then on the face of it you would have two choices:-
1) You could give up your job and take over the roles of Dad and homekeeper or
2) You could keep doing what you’re doing workwise and pay other people to do the jobs of looking after the house and looking after the kids – and I say “people” advisedly because in my experience the only single person who would be prepared to do both jobs is your wife and the mother of your kids! And by the way these people don’t come cheap!
So which of these two options would you prefer?
Everyone I know of would prefer the second option, but this now gives rise to the question of what is the ERV (Economic Replacement Value) of a Mum/Homekeeper)? In other words, what would you have to pay other people to take over these jobs? I remember reading an article many years ago that put the value of a homekeeper and mother of two kids in Sydney at around $70,000 per annum! Whether you agree with this figure or not, the amount required would make a serious hole in the breadwinner’s income.
When then translating this ERV into a calculation for an appropriate level of Death Cover, I would use exactly the same calculation as I used for the breadwinner, simply substituting her ERV for his salary. Typically, depending on the circumstances, I would take an ERV of somewhere between $40,000 and $60,000 per annum, and because a non-working Mum/Homekeeper cannot get full blown Income Protection, I would be recommending that Trauma Cover and modified TPD was added to the Death Cover for the same amount.
To flesh out this concept as well as a multitude of other client engagement scenarios in the risk advice space, I recommend you come along to my upcoming ‘Risk Workshop’ in your capital city, as it will give you a much needed “shot in the arm” in addition to a bucketful of simple, practical and usable client engagement tools that you can start using to good effect in your business right away. Just click on the link below for all the necessary details and I hope to see you there.
The Risk Workshop by Chris Unwin
Are you a financial adviser who would like all of your clients to have appropriate types and levels of personal protection? But perhaps you feel you need a more structured and client friendly engagement process?