September 4, 2019
This is a great message to advisers from BT’s Crissy De Manuele on an under-utilised advice solution – especially taking into account the amazing fact that if unpaid childcare work was regarded as an industry, it would be three times the size of the financial and insurance services industry in Australia…
According to a recent BT Financial Health Index survey, homemakers are not as confident about their financial future as those who are employed. The survey also indicated that homemakers generally do not believe that they have enough life insurance, don’t know how much insurance they need or have not considered the benefits of insurance.
Homemakers include stay-at-home parents, part-time workers, or employees on a break before returning to the workforce. As BT’s survey indicates, some of these clients do not always understand the importance of life insurance and the types of cover which may be suitable to them.
Helping clients with understanding how life insurance can protect and support homemakers is a valuable part of a holistic approach to providing financial advice – one that takes into account the entire family.
…if unpaid childcare were regarded as an industry, it would be the largest in Australia
When doing the calculations, advisers are sometimes surprised to find that the cost of replacing someone to provide childcare, transportation, household cleaning and cooking, along with family management, can be higher than replacing employment income. A PwC report estimates that the value of unpaid childcare alone is $345 billion; and if unpaid childcare were regarded as an industry, it would be the largest in Australia, almost three times the size of the financial and insurance services industry (in 2011 terms).
There is a range of life insurance policies suitable for people who fall into the category of ‘homemakers’. Depending on the client’s circumstances, the client may even be eligible for occupation-based cover.
‘Home duties’ policies
Contrary to what some clients may believe, most retail insurers offer specific income protection and total and permanent disability (TPD) policies for clients performing home duties. Generally, they are aimed at individuals who are wholly involved in performing home duties, or those that engage in less than 20 hours of paid work per week.
If the client is temporarily disabled and unable to perform home duties, a home duties income protection policy can provide relief; for example, BT provides a monthly benefit of up to $5,000. This amount can be used to pay for a professional such as a cleaner or nanny.
The underlying definitions are aligned with day-to-day tasks carried out by a stay-at-home parent.
Where a client works 20 hours or more per week, then they may be eligible for occupation-based cover, which has more expansive coverage than home duties cover. TPD cover can be based either on their current occupation, or any occupation for which they are generally suitable (based on their career history). Where the TPD policy is held outside superannuation, a broader definition allows the possibility of a claim if the insured person is still able to work, but is employed in a role that pays less than 25% of their previous earnings.
Home duties vs occupation-based cover
As the ability to access certain types of policies is determined by the client’s hours of work, often it is not a choice as to whether a home duties or occupation-based policy can be offered – it is one or the other. However, when a client is planning on taking a break from the workforce or wholly assuming responsibilities in the home, this raises the question as to what type of cover should be recommended, given that hours of work may change in the future.
Acquiring cover during pregnancy
For life and trauma benefits, unless there has been a history of complications, cover will usually be considered at standard rates. Therefore, unless there is a history of serious medical complications, pregnancy should not be a factor in determining whether cover is available.
For TPD benefits, like life and trauma, unless there has been a history of complications, cover will usually be considered at standard rates. However, if the client is more than 30 weeks pregnant (or, for some insurers, defined as being in the third trimester) then attaining cover may be more limited.
Some insurers will not approve TPD under an ‘any occupation’ or ‘own occupation’ definition, instead requiring the policy to be issued with a ‘home duties’ TPD occupation. Others may not offer cover, or will defer a decision until after the birth.
Depending on the insurer, income protection cover is usually available for employed expectant mothers up until the 30th week of pregnancy or up to the third trimester. Once past this point, most insurers will not offer cover, and will defer a decision until after the birth and the mother has returned to employment. What should be noted is that if a client obtains occupation-based income protection cover, and subsequently goes on maternity leave, this may impact the ease of, and ability to claim.
Therefore, if given the option, what is the most appropriate form of cover, occupation-based or home duties cover? As occupation-based cover provides broader definitions; if available, this is the preferred type of policy. This will mean that when your client returns to work, they will have the appropriate type of cover in place already.
Protecting your client’s children
When giving advice to clients on how life insurance can protect families, a type of cover that advisers may wish to consider is ‘Child trauma cover’. Many parents are unaware of the importance of having this cover; however, in most cases, when asked what they would do if their child became seriously ill, almost all parents agree that they would want to care full-time for their child. This may force the parent to cease work or, if they are a homemaker, require them to pay other people to assist them with looking after their home and caring for other children. It may also involve expensive medical costs.
Child trauma cover provides a lump sum benefit if the insured child is diagnosed with a serious medical event or critical illness. Different policies cover different medical events, such as: brain damage, cancer, kidney failure, loss of limbs and terminal illness.
Clients often understand the importance of having life insurance when they are working, but may be less aware of the relevance of life insurance when they are a homemaker (or if their spouse is a homemaker). Increasingly, parents are juggling both work and home duties, which means there are particular considerations for risk advisers looking for strategies to meet the needs of this diverse client segment, during different life stages. Smart strategies can ensure comprehensive cover that changes and adapts over a client’s lifetime.
Crissy De Manuele is a Senior Manager – Product Technical, Life Insurance, at BT.