For many years, middle class South Africa has been plagued by hordes of over-zealous (and often poorly qualified) insurance brokers, over-anxious to flog their array of over-complicated, barely-understood insurance products with badly drafted sales pitches intended to seduce you into buying policies based on fear, guilt and sometimes sheer ignorance. The insurance salesman, having limited (if any) knowledge of the concept of financial planning in its truest form, has been exorbitantly and inappropriately incentivised by South Africa’s dominant insurance companies, earning upfront commissions of staggering proportions – commissions and incentives that are way out of proportion to his qualifications, expertise, knowledge or the effort required to fill out the albeit time-consuming life insurance application forms. In their target-driven rush to flog their array of insurance must-haves, the broker has fallen desperately short of the requirements for sound financial planning. Their questionable, and many times blatantly unethical, behaviour has not only compromised the professional reputation of the qualified and serious financial planner, its also compromised the interests of their clients by failing to really assess the needs of the whole family. With examples too many to confine to one blog, let’s focus on the non-earning wife (or possibly husband) and her need for life cover.
As one of our underlying financial planning principles, we insist on preparing a joint financial plan for both spouses – regardless of who works, who doesn’t or how much each earns. Why? Because, regardless of income, qualification or career, the couple is running a joint household, they are raising their children jointly and they are jointly responsible for their financial futures. A common misperception that we need to deal with upfront when counselling couples is that the breadwinner is the one who needs life cover, disability protection and severe illness cover. If the wife doesn’t work, the assumption is that there’s no risk that needs to be protected. She doesn’t earn an income, she brings nothing into the family bank account and if she were to die or become disabled there’d be no financial loss, right? Absolute and emphatically wrong.
Let’s assume a family of four, where the husband is the sole breadwinner and (by mutual agreement) the wife is a stay-at-home mother to their two small children. The natural assumption is that the husband would require insurance of some sort of insurance in the event of his death or disability. And rightly so. If he were to die, he would need to leave his wife with sufficient life cover so that she could maintain their lifestyle, invest for the children’s education and fund for her retirement. If he were to become disabled, he would need insurance to protect his income – in other words, to pay him a monthly disability income until his retirement age. He’d probably also require a lump sum severe illness cover to provide capital in case he were to have a heart attack or suffer from a debilitating illness. In many instances in the past, this is where the financial planning needs of the family ended! But what about the wife? Or, more importantly, what about the husband and the children if something happened to her?
Now, I’m a working mother, and am privileged to work from offices that are connected to our home. As a mother of three children, I have a very full appreciation and respect for all mothers, regardless of whether they earn an income or not. Mothers seem to be genetically predisposed to the art of multi-tasking, with an innate ability to get the job done in the least amount of time, very little complaint, insurmountable energy and with no expectation of reward. Let’s assume, in our example, that the mother is tragically killed in a car accident, leaving her full-time employed husband and her two young children. The common assumption would be that there would be no financial implications as a result of her death. The reality, however, is that there’s a whole host of functions that would need to be replaced. Let’s look at her (non-earning!) job description:
- Performing household chores
- Grocery shopping
- Clothing the children
- Paying and organising domestic workers
- Lifting children to sports and extra-murals
- Liasing with school and teachers
- Supervising homework and projects
- Preparing meals and school lunches
- Running the household budget
- Taking care of speech therapy, OT, doctors and other medical needs
- Attending school meetings, PPTs and other committees
You see, where many people tend to get confused about is this: the full-time mother doesn’t earn an income, but she does work. And her role as mother is the most important job on earth.
My husband and I review our financial plan every year to ensure it remains appropriate to our needs. This may sound excessive, but you’ll be surprised at how dramatically your circumstances (both personal and financial) can change over the course of twelve months. Part of our financial planning process is based on the concept of scenario planning – answering the ‘what if?’ questions.
So, returning to our example above, when doing financial planning with the couple, we would have done some scenario planning around the question “what if your wife had to die?’. Some of the questions we’d encourage her husband to consider would be:
- Would your employer-granted compassionate leave be sufficient for you? Or would you need to take an extended sabbatical from work in order to deal with your grief and that of your children? If you’d like to take an extended period of leave (perhaps between 3 to 6 months), you’d need to provide for this in her life cover.
- Would your medical aid cover the costs of trauma/grief counselling for you and your children? If not, rather insure for these additional costs appropriately. In general, only comprehensive medical aids provide for psychology benefits subject to certain annual limits.
- Would you need to hire an au pair or a child-minder to take care of the children during the afternoons? By calculating the cost of a child-minder’s income and the years of schooling left, you can fairly easily calculate how much to insure for in this respect.
- Would you need to hire a tutor to assist your children with homework supervision? This will become more necessary as your children get older and their schoolwork becomes more challenging.
- What do you anticipate would be your baby-sitting expenses? You would need to consider the fact that if you travel regularly for business, you may need to hire a regular baby-sitter or live-in helper. Once again, these costs can be easily estimated.
- What would happen during school holidays? You will need to give thought to holiday care and the associated costs thereof. Alternatively, you may need to consider the costs of flying grandparents down for the holiday periods to help look after the grandchildren.
- Would you need to hire a domestic worker (or increase domestic help) to include meal preparation for the family? If you’re working full-time, you will need someone to prepare meals for you and the children, pack school lunches and attend to their nutritional needs.
- Would you consider cutting back on your hours of work in order to spend more time with the children? In this regard, you can calculate your potential loss of income over a period of time (for instance, until the children are in high school) and then insure for the future income loss.
- Would you consider having your parents (or perhaps your in-laws) move in with you to assist with the children? If so, would you need to renovate the house or make structural changes to accommodate them.
Food for thought? Absolutely. In a similar vein, if his wife were to become disabled, we would go through a very similar ‘what if’ scenario planning session in order to determine the family’s exact financial requirements should Mom no longer be able to perform her all-important role as mother, wife, chef, taxi-driver, bookkeeper, secretary, head buyer, chief-liaison-officer, therapist and tutor.
Our society, in general, undervalues the role of the stay-at-home-mother and this is never more evident that in the field of financial planning. In the words of GK Chesterton, “How can it be a small career to tell one’s own children about the universe? How can it be broad to be the same thing to everyone and narrow to be everything to someone? No, a woman’s function is laborious, but because it is gigantic, not because it is minute.”
The mistake made by so many financial planners is they assume that if there’s no financial loss, there’s nothing worth protecting. The reality is the loss of a mother is greater than anyone can ever quantify, and the loved ones left behind are well worth protecting.
Have a blessed day!