If you’re juggling work as well as a family, child care costs can really eat into your paycheck. That’s why having one parent stay at home with the kids makes sense for a lot of New Zealand whānau. In the 2017 Household Labour Force Survey, Statistics New Zealand says that 22.3% of people not in the labour force listed raising children as their main activity.
So what is the best life insurance option for you, if your coworkers call you Mum or Dad? Do you even need cover? What is Life Insurance needed for if you’re a stay at home parent?
The short answer if you’re speed-reading this while the kids have their afternoon nap is yes, you probably do — for quite a few reasons other than just covering child care costs. If you’re not on a salary you’re saving your household a lot of money each week as a stay at home parent or homemaker. The unpaid domestic labour you do looking after dependents and the household is a full time job! So if something happened to you, does your partner earn enough to afford help with the kids and house?
Whether you’ve already got a growing whanau, or kids are in your future plans, it’s important to make sure you’re ensuring the financial security of your loved ones
The first step is working out if life insurance is the best option for your life stage.
Is your partner the primary breadwinner? Families often assume that only the partner who earns a regular paycheck needs life insurance. This is often incorrect for a couple of reasons.
The first is that they often haven’t considered the repercussions of not covering the stay at home parent. We’re going to look into this more in the next section, but it’s important to quantify how much the stay at home parent contributes in domestic labour. Could the household get by if this was no longer available?
The second is that they believe the amount of insurance cover provided by the working partner’s provider is enough for the family. This will depend on your personal situation — get in touch with one of our consultants who will be able to advise whether you have sufficient cover. And remember — Chubb Life will never recommend you life insurance if you don’t need it.
This figure will depend on your personal household situation, how you distribute your income, as well as your financial priorities. Here are some factors to consider when you’re trying to work out how much staying at home is saving your household:
1. Try to place a dollar value on the amount of childcare your household would need in order to continue running as it currently does.
2. Does the decision to send your kids to public school or private school affect this? Incorporate this into your calculation.
3. Then, work out how much ‘other stuff’ the stay at home parent does to keep your household ticking over. Employing someone to do jobs like cleaning, maintenance, gardening, cooking, and running errands will cost your household more.
If something happened to the stay at home parent, could the breadwinner cover this figure with their income?
If you think the answer for your household is yes, have you thought about future financial goals your family may need to save for? If childcare, household maintenance and support costs would limit the breadwinner’s ability to save for your kid’s tertiary education, for example, you should consider life insurance for the stay at home parent to make sure you can cover this savings goal.
Life insurance is a future-proofing measure. When you’re deciding if you want to get cover, you need to think about the kind of future you want your family to have — and then plan accordingly for if something happens.
Considering some key lifestyle factors will help you narrow down your options. Do you want the mortgage paid off on your house? How are you going to manage these mortgage repayments? Do you want to help your children through university, and if so, how much are you willing to contribute to their tuition fees and other expenses?
After all of this financial chat, let’s be honest. If you do pass away, covering the financial value of your unpaid domestic labour is going to be one of the last things on your family’s minds.
Life insurance can be used to cover the working parent taking time out from their job to grieve, and help your children adapt — whether that includes starting at a new daycare, hiring a nanny, or getting used to life without a parent.
It’s a worthwhile exercise to sit down with your partner and have a conversation about what would happen if one of you were to pass away while raising children. Try to put monetary values on these factors if you can, starting with these questions:
1. Would the surviving partner continue to work away from home? If yes, then the question is not so much around income replacement than home management (see conversation starter number 4)
2. Could family members step in to take care of children, or are you going to need child care?
3. Would the surviving partner want to move out of your house, or move out of the area? Consider the emotional as well as financial costs of moving house vs living in a house with memories.
4. If your partner is unlikely to want to move, and you don’t have family nearby, who is going to manage the house while they are at work? Think about how to manage your home and what your household needs are in terms of maintenance, cleaning, shopping and time spent doing errands.
Working out how life will go on after the death of you or your partner makes it easier to get a life insurance quote from Chubb Life when you know roughly how much cover you’ll need. After your "what if?" conversation, here are some phase two questions to think about:
1. How much childcare would you need per year? Remember to factor in before as well as after school, how many weeks a year you work, and multiply by the number of dependents you have. What does your budget look like after accounting for this cost?
2. When will your children move out from home? Multiply the amount of years you have left by the costs above.
3. Does the stay at home partner have extra care responsibilities, such as aging or special needs family members to look after?
4. How much would time off work cost if the surviving partner wanted to take leave after the death?
5. Would the surviving partner want to move, to be closer to family?
6. What kind of funeral would the stay at home parent want to have?
7. What does your family have in net assets?
There are, of course other ways to gain financial security as a stay at home parent. Your Kiwisaver can be used to buy your first property assets as well as sorting you out for retirement. Of course, stowing away money where you can will also help. Actively investing some of your household income can also be a canny way of building financial security.
Whatever way you choose to safeguard your lifestyle, chat to Chubb Life first to help you explore your options.