Are you both insured? Here is why you should be

Does someone not earning an income need personal insurance cover? We very strongly believe they do.

We have written before about the importance of income protection, as your ability to earn an income is your greatest asset. To this end, making sure you have adequate income and life cover for the breadwinner in the family is a no-brainer.

However, it is worth looking at the larger picture too. While we often tend to value someone based on their income, this is obviously never the whole story.

For example, if you are at a stage of life where someone is working in the home or only part-time, what level of personal insurance cover do they have? And should they even have cover if they have only a small income or none at all?

Why both spouses need personal insurance cover

While unpaid work is often undervalued it contributes enormously to a household in different ways, and the very real financial ramifications of a non-working spouse being taken out of action are only one part of the picture.

Let’s look at a fictional couple, Brian and Lisa, in their mid-thirties with two children under five. Brian is the breadwinner and Lisa is currently a stay at home parent.

To understand why Lisa should have cover let’s imagine what would happen if she was diagnosed with cancer.

• The breadwinner will take time off work

Brian isn’t going to get up tomorrow and go to work. If it is terminal cancer he is going to want to spend as much time as possible with his wife. If it isn’t a terminal illness, life will be turned upside down with treatments. Depending on where they live these treatments may be a considerable distance from home.

Brian has income protection but it only covers him being unable to work because of something happening to him, not something happening to a spouse.

So right away the family has lost their income at a time when they are going through some major stress.

• Someone has to pick up the slack

If Brian is going to be looking after Lisa, who is looking after the children?

We had a client joke that they needed more cover for the stay at home wife than the self–employed husband as he would need to employ a nanny, cook, cleaner, PA and accountant to cover her absence.  While that may be a little extreme, it is important to have a thorough discussion about the ramifications of the at-home spouse being out of action, and looking at different scenarios. Family and friends may be able to help out but, depending on your circumstances, you may need to look at paying someone to help.

Consider how much pressure the family would be under if, while caring for his wife, Brian used up his annual leave, needed to pay for accommodation away from home and suddenly had to budget for additional childcare costs. Added to the emotional trauma of the illness itself, this financial stress would make life much more difficult for the family.

So how do you mitigate the risk?

The easiest and most cost-effective way to cover someone who does not have an income is by bolstering their trauma cover. While children are automatically covered on most trauma policies spouses are not, so each must have their own.

You may be surprised at how little it can cost – $100,000 of trauma cover for our fictional Lisa would be less than $20 a month.

Talking to an adviser about your current life stage is the best way to make sure your family has the best level of cover you can afford when you need it. Take the time to discuss how much income each spouse would need if the other was unwell, or no longer around.

There are some income protection policies that include cover for a dependent relative, which is another good reason to talk to your adviser when choosing the cover that is right for you.

Need to talk about protecting your family? Contact one of our advisers.