Making Cents: What is the monetary value of Kildare's stay at home parents?

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 an accident or illness and it’s called Permanent Health Insurance (PHI)

If you are unable to work, after a deferred period elapses the policy will pay a monthly income up to a maximum of 75% of your salary, minus any social welfare payment.

This type of insurance is often made available and paid through employer funded schemes and its’ a very important and valuable benefit to have in place. And there are many areas of our lives that we need to protect via an insurance policy i.e. our home, our car, health care costs, our lives etc. but right up there as being as important as anything else is protecting your income because without it and without being able to work to earn one, it goes without saying but I’ll say it anyway, financially you’re going to struggle.

And when you think of this type of policy, you automatically assume that it only applies to people in employment. But what about people who don’t earn an income?

And I’m specifically thinking of stay at home mothers and fathers.

According to figures I’ve seen recently, there are approximately 350,000 people working in the home. Which begs the question, what would happen if they became sick or suffered an illness or died and they weren’t able to carry out the tasks they do every day? Which are things we take for granted like, childminding, cooking, washing, driving and so on.

Stay at home parents 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 every day, how much do you think it would cost to replace them?

Well, according to findings from the annual Stay-at-Home Parent Survey commissioned by Royal London Ireland, the amount is €54,590.

Royal London were able to back this number up by looking at the role’s homemakers undertake each day and could put a number alongside the cost associated with each. And here are some examples:

Cooking

Preparing breakfast, lunch and dinner is probably 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. And if you were to hire someone in to replace what a homemaker does in this instance, the cost per hour would be c. €12.10.

So the annual cost in this area is €9,438.

Taxi service

If you were to put a time spent on this activity for a typical homemaker, Royal London believe it accounts for about 10 hours of their working week.

The cost of hiring a driver for a week, to replace the homemaker they estimate would be about €254 per week or €13,208 per year.

Child minding

The estimated number of hours sent in this area per week is 30 and if you were to put a cost of €12.10 per hour to hire someone in to do this job, it would cost parents €373.80 per week or €19,438 per year.

There are many other areas such as cleaning i.e. time spent vacuuming, sweeping, scrubbing sinks, loading the dishwasher, making beds etc. and Royal London estimate that it would cost you €4,514 if you had to pay someone else to do it, they found a cost of €3,640 per year for teaching, €3,469 for being the general handyman/woman and €884 for being the gardener.

When you add up everything the cost comes to €54,590.

That’s all fine and interesting but let me go back to where I began, because my point is this - it’s all well and good and proper to protect the income earner of the household, but we also have to consider what the financial impact would be if the stay at home parent was to become sick or suffer an injury that prevented them from doing everything they do.

Knowing what we now know, I think it’s clear the financial impact an injury or illness or death to a homemaker would have on the family unit is huge.

Up until very recently there was only one insurance company who offered an income replacement policy that was designed specifically for homemakers and carers. They were offering cover of up to €15,000.

And the cost of putting in place such a policy for €15,000 per year lasting until the age 65 for a 35 year old non-smoker male or female, with a deferred period of three months was €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 was something to consider and not to be ignored.

Unfortunately this cover has since been withdrawn and when I contacted every insurance provider this week asking them did they have such a policy, they all said no, but I was advised by some that this was an area they had under review and something that they would consider.

And I’m hoping one of them will come forward with a product that is clearly needed.

Whilst we’re waiting for them, what can you do?

I think there are two things.

The first is something you can control and that’s protecting the life of a homemaker.

So, if god forbid they were to pass away and you had a life policy in place for them, a lump sum payment would be made from the proceeds of the policy.

And if you were to put in place cover for say €150,000 for a period of 20 years, the cost based on a 35 year old would amount to just €0.41c per day.

And in a period of high mortgage rates and high inflation and high cost of living, you don’t want to add to someone’s already stretched monthly outgoings but when you see what the impact and cost could be, perhaps the relatively small cost of putting protection in place is worth it. And you obviously never want to have to use it but at least you have the peace of mind knowing it’s there if anything did happen.

The second thing you can do is build up that emergency fund so that if something was to happen to a homemaker, you have savings that can be called upon that can be used to bridge the difference from whatever social welfare payment that might be paid, and whatever the cost of having to pay someone to carry out some of those duties I referred to is, until the homemaker recovers.

It’s something that hopefully will never happen but you’ve got to plan for the unexpected and hope it never happens but when you see what that unseen income a homemaker actually earns’, and knowing that if it was no more, it might be the trigger and motivation to set money aside each month that can be called upon if ever needed in the future.

I actually believe the monetary cost of replacing a stay at home parent is so important that it should be factored into every household’s financial plan, and it’s something I’ve begun doing now with my own clients.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at [email protected] or www.harmonics.ie