Recently, I've been encountering quite a number of clients with young families. During our interactions, I notice a few recurring themes coming up.
1) Why does the homemaker spouse (usually the wife) need critical illness coverage?
2) Since the homemaker isn't working, how much coverage should she get?
3) Why do children need critical illness coverage or life insurance?
4) How much do they need to plan for them?
5) How do they finance the plans if they aren't working?
These are all valid questions. Insurance coverage is by default not the most popular topic. To suggest that members of the family who aren't contributing to the household income also need coverage seems doubly unpopular. On top of which, it adds to the financial stress of those working.
In this article, I strive to put into perspective why getting critical illness coverage for these non working family members ensures that your life doesn't turn upside down when one of them falls ill.
We wouldn't want our lifestyles to take a 360 degrees change simply because all our surplus savings goes into funding unforeseen family needs all of a sudden.
Key Purpose Of Critical Illness Insurance
I guess nobody is going to dispute that working and non working family members need hospitalisation insurance. I also suppose everyone knows its importance.
What is less common knowledge is the purpose of critical illness insurance especially since a hospitalization coverage would already settle most of the medical bills.
A critical illness (CI) coverage is meant to provide an income replacement in the event a person needs to stop work for a period of time during recuperation. Hence, it's understandable that people are typically skeptical non-working family members need this coverage given that there is no income to protect.
What a lot of people fail to consider is who is going to look after these family members when they are unwell. In the case of a non working spouse, who is going to take care of the household chores when the one contributing in this area is ill. Very often, a typical CI payout would cater to cover a working adult's caregiver needs and other lifestyle changes including change in dietary requirements and healthcare supplements. Non working family members are also humans. They have the same needs!
Key Considerations For Different Non Working Family Members
Homemaker (usually the wife)
A homemaker usually looks after the household chores and children unless the household has hired a maid. Hence, when this person is down, the key financial considerations would lie mainly in whether a helper needs to be hired to takeover the household chores and if the children needs to be sent to childcare centres. Both requirements would incur costs. On top of role replacement duties, there is also the consideration of additional costs incurred from change in dietary needs, healthcare supplements and also potentially additional outpatient needs like taking a cab back home after a chemotherapy or physiotherapy session.
Children
Children are deemed to not contribute to the financial household needs and neither do they contribute to caregiving duties or household chores. On top of which, they are deemed to have ready arrangements to be taken care of by default of being children. What parents may overlook is the differing needs between looking after a kid who is well and a kid who is sick. As it is, it is not uncommon for parents to take urgent leave from work if their kids fall ill on a typical day. Hence it is definitely reasonable to consider long term caregiving needs for a child who is majorly ill.
In such circumstances, a regular day arrangement like childcare would no longer be feasible. Maybe, a helper may not even be trained or mentally prepared to look after such children. More often than not, one parent is likely to sacrifice. Therefore on top of the caregiving needs of dietary, supplements and other additional cost, the CI coverage also needs to factor in the lost of income of the sacrificing spouse.
Even if there is already a homemaker at home, having a sick child with major illness has a different set of demands. A family with no hired maid may suddenly need one as the bulk of the homemaker's time would be spent taking care of the child.
How much coverage is realistic?
A good guide for the homemaker would be the average cost of getting a helper and childcare help with a general recuperation time of between 3-5 years for early and advance critical illness respectively. Sometimes, it may be more conservative to take the working spouse income as the coverage amount as the spouse may decide to stop working for a while to play an active role in the recuperation process.
A good guide for children would be the annual income of the working spouse who is likely to sacrifice for the caregiving needs of the child.
How Do Non Working Adults Pay For Such Coverage?
Finding a willing party to pay for children CI coverage is typically easier because parents love their kids and usually may even be willing to buy more insurance for them than themselves. For some reason, adults are expected to look after themselves.
More often than not, women who sacrifice their jobs somehow find themselves trying to finance their own insurance needs. I'd say, couples should come together to look at this problem as a family issue. Ultimately, if one spouse is down, there will be household problems arising which the other spouse needs to cover.
Essentially the purchase of insurance is meant to avoid future financial problems arising from unforeseen circumstance. Hence, sometimes family members even ensure that other working members buy their own insurance so that the financial liabilities won't be transferred to them. Therefore, it's reasonable for the working spouse to look at insurance purchase as a means to transfer his/her future financial liabilities to the insurance company and finance it.
Summary
In a nutshell, it is important for non-working family members to also get covered for critical illness. Ultimately, the financial considerations of these non working family members are no less than the working parties. They are simply different in nature. The key benefit of having insurance is to ensure that the financial stability of the household is not destabilised. It is also to enable the family to utilize the payout to keep life going as normally as possible.
As much as this article did not cover other forms of non working family members like parents or siblings, the rational of any protection coverage would be similar in logic.
Let's put the feeling of 'expensive' aside and ask ourselves this question objectively:
Will paying for insurance for these non working family members turn my life upside down if nothing happens?
...and will not paying for insurance turn my life upside down if something happens?
After reading this article, you may have some questions or wish to get some of your family members covered. You can reach me by dropping me a message.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about retirement planning.
About Janice
I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning. Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here.
I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram.
Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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