In a typical week a Mum will do 71 hours of unpaid work, whilst a Dad will do 53.5 hours.
This is the little recognised reality highlighted in a Legal & General report emphasising the need for families to have adequate insurance cover.
The 2013 ‘Value of a Parent’ survey details the costs of raising children and places a monetary value on the domestic work carried out by parents.
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In monetary terms the value of this work on an annual basis in the typical example mentioned is £31,267 in respect of mum and £23,971 for dad.
People underestimate the value of such unpaid tasks and do not put in place safeguards in the event that illness or death render them unable to carry them out. The report also considers what parents consider to be their financial priorities and emphasises the importance of insurance cover and wills in this regard.
Very often the level of cover for a protection plan will be based around an individual’s employment earnings. Whilst this is certainly important, Legal & General emphasise the importance of unpaid domestic work too. In calculating the sum assured for a life assurance policy this should be factored in by families.
One of the principal costs for families is that incurred in the raising of children. The report demonstrates that many parents expecting their first child do not realise how much these costs are likely to be. Since 2001 this annual cost has risen threefold and is now £8,580.
The expectant mothers surveyed by L&G anticipated costs of £5,400 per year - a shortfall of 59%. Over the course of 18 years, parents will typically spend in excess of £150,000 per child. If you add mortgage payments into the equation too, it is unlikely these costs could be borne without employment earnings.
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When questioned about their financial priorities 73 per cent of respondents said that if they should become seriously ill or die, they wished for the financial well-being of their children to be assured. The same people estimated that their savings would only last for around eight months if they were without earnings.
Given the costs outlined above, without appropriate financial protection most people would be unable to provide for their children in the medium-long term. With many families spending more on pocket money and treats for their children than on insurance provision, unexpected illness or death could present serious difficulties.
The first port of call for everybody should be the writing of a will. This costs nothing and is the best way to ensure that your assets are passed to the right people. Less than one third of those surveyed by L&G had one in place.
Amongst those who have taken out some form of insurance cover the most popular choice was life assurance. This can incorporate Whole of Life which pays out on death at any time or term assurance which will pay the benefit if death occurs within the plan term.
Life assurance premiums are generally affordable - a 40-yard-old could purchase a Whole of Life plan with £500,000 of cover for less than £35 per month.
These costs could be reduced further by setting the plan up on a joint life basis. It would not pay out until the death of the second life assured but this would be suitable for parents wishing to leave a sum of money to their children. For inheritance tax purposes these plans should be placed in trust.
Other options are Income Protection and Critical Illness Cover - two different types of policy that complement each other well. Income Protection policies will provide a weekly or monthly income when the life assured is unable to work due to long term illness or incapacity.
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Premiums for individual policies will have been paid out of taxed income and thus any benefit payable will be paid gross. Policies can pay a benefit up to 75% of salary and payment will commence after a waiting period of up to 26 weeks.
Critical Illness Cover pays out on diagnosis of a potentially fatal illness. The list of ailments will vary between providers meaning that careful selection is necessary, but core illnesses include cancer, stroke and heart attack. The lack of a waiting period before the benefit is paid means that taking out both Critical Illness and Income Protection cover might be an option to consider.
Ultimately the decision as to which financial protection you choose will be based around your individual situation and what you deem to be affordable. In addition, having put cover in place it is important to review it regularly to ensure that it continues to meet your requirements.
* Trevor Law is a director with Merito Financial Services, chartered financial planners, based in Solihull. E-mail: tilaw@meritofs.com