Just because a stay-at-home parent doesn’t earn a salary, it doesn’t mean it wouldn’t hurt their family financially if they were to pass away.

In fact, the site www.msn.com puts the value of a homemaker at just under NZ$50,000 per annum!
So what would happen if this key person in your home were to pass away? Some of the key costs that you may need to cover would include:

• ? Child care: Day care centres for young children are not cheap and a full time nanny is even more expensive. Typically they run at $200 per week, amounting to $10,400 a year. Even if children are at school, arrangements may have to be made for after-school care.

• Chef duties: Due to work commitments, adding cooking to your daily routine can be quite impractical. Cooks can be hired at around $100 per week to cook your meals in advance. This can cost up to $5,200 a year.

• ? Maid service: Cleaners cost about $25 per hour and are typically engaged for three hours per week. That’s just under $4,000 a year.

• ? Counselor: Counselling services for family members should also be taken into account. Not only is the homemaker the one who cooks, cleans and babysits – they are also the heart of the home. Losing them can be emotionally devastating and counselling is often required. At upwards of $250 per hour, this can end up costing thousands.

You must also take into account the disruption to the surviving spouse/partner’s work and possible loss of income.

They are unlikely to go straight back to work after the funeral, and taking a couple of months off is not uncommon.

For an income of $100,000, that could mean $15,000 to $20,000 in lost earnings.

The combined cost of all of these services could obviously devastate the average middle-income family with no life insurance coverage for the stay-at-home parent.

Essentially there are three possible solutions for families that suffer the loss of a stay-at-home spouse:

1. Pay the expenses out of savings. But how long would these last?

2. Add to the mortgage. But can you afford to do this now that you have these additional expenses to cover?

3. Life Cover. This can be the most reliable option of the three.

Do you have enough cover?
When people first take out life insurance they assess all of their current needs – mortgage, funeral expenses and other debts.
But often people forget to review their insurance needs on an ongoing basis.
Reviewing your insurance regularly is crucial, especially when you start to have a family and have more to protect.
Having a regular check-up is what an adviser is for, so if you haven’t looked at your insurance for awhile, then it might be time to book one in.
Source | TOWER Health and Life

by Sue Laing | Friday, 18 September 2009
If you are a full financial planner handling wealth accumulation, management and protection, you will be regularly facing a challenge few advisers seem to have yet conquered.

Unless you have a referral base that feeds you nothing but public servants (unlikely) the challenge manifests as the need to effectively engage clients who are co-owners of their own businesses, with arms-length partner or partners, in a discussion about the risks of illness or injury or death to a business partner.

If we talk in pure marketing terms for a moment, the challenge manifests in the financial planning industry’s pretty dismal penetration into the small-to-medium (SME) business segment to date.

If wealth accumulation and management are your target advice areas, then the SME demographic has not offered much in the way of potential to be workforce-through-retirement clients. By their nature, they reinvest most of their earned wealth back into their business, regard their business entity as their future retirement fund, and have little apparent investable wealth lying around.

But if you are conducting full financial planning, your responsibility extends to the protection of wealth no matter where that wealth resides – so the SME owner’s business asset must become the focus of a protection plan.

That all sounds straightforward.

So why don’t financial advisers do a good job of installing business insurance into their advice processes and delivering them to suitable clients? After all, with the number of small businesses in New Zealand, it’s impossible to imagine that any adviser has no clients engaged in their own businesses. So why stop at the personal insurances?

All is not lost!

Take heart – there are some sound reasons why advisers struggle with this, and it is largely to do with the positioning of such advice by the industry itself. With a little introspection and a slight shift of paradigms, the task becomes easy.

Firstly, the industry has been calling the delivery of this advice “business insurance” for so long that we may be caught up in our own jargon. For one thing, in the absence of an on-the-spot definition, the term means “general insurance” to most clients. So you are on the back foot to start with. For another thing, that name implies a much less significant process than it should. More on “business insurance” in a moment.

Secondly, a lot of life risk insurance advice, both personal and business related, is not delivered within the context of estate planning outcomes – and should be. After all, when it all boils down, insurance proceeds would not be needed if someone’s estate was guaranteed to contain enough liquid assets to meet all the estate desires of the deceased or disabled. In 99% of cases advisers deal with, there is no way the estate can meet all its current and future obligations without some form of additional funding. That’s all insurance is – a guaranteed funding mechanism.

Transpose this across to the business owner: what is often a business owner’s biggest estate asset (and therefore relied upon to provide for the estate beneficiaries if something should go wrong)? It’s their share of their business, be that 50%, 33%, or 25% of the business’ value. Try converting that business share, as an illiquid estate asset, into guaranteed funds for the surviving family, without insurance as the funding mechanism!

The root of the problem

Which brings us back to the root of the problem – calling this advice “business insurance” without questioning what message that relays to our clients. The term implies that a couple of policies sold will solve the problem, and underplays just how critical the full end-to-end planning process is to the business owners’ security. That’s why it should be called the “business succession planning process”.

Funding provided by a “business insurance process” cannot and does not fully protect the estate and the business without the accompanying planning and documenting, involving lawyers and accountants doing their bit to make it all work as the parties have agreed.

And the financial adviser is always the one who makes all this happen as the facilitator.

Yet we continue to talk about “business insurance” not “business succession planning”; the current moniker does nothing to showcase this crucial role the adviser plays in this very important piece of estate planning – it’s well beyond selling a few policies!

What about when we talk about protecting the business, rather than protecting the estate?

This habit certainly reflects the common wishes of the surviving partners to keep the business alive after the death of one of them. It doesn’t, however, result in great client engagement. Why? Because we are not targeting the emotion attached to the fear of leaving one’s family short of funds and facing debt. As you sit facing several business partners, remember that they don’t know which one of them might be the one to die – and so they can all be appealed to, to be concerned about their deceased estate being fairly rewarded for the blood, sweat and tears they have invested. The “protection of the business” becomes secondary.

It’s all in the lingo – and we are still learning to speak proper!

Sue Laing is Managing Director of the risk store, the life risk knowledge and ideas store for financial planning professionals. This article is published with permission from the risk store