Term insurance plans cover pure risk and provide a substantial life insurance cover for a nominal amount. In the industry, these plans are commonly positioned as a safeguard for the breadwinner of the family against life’s unfortunate circumstances such as death or disability. In the unfortunate event of the breadwinner’s demise, his family can use the amount received for immediate household expenses as well as for fulfilling important milestones in life such as the children’s higher education and marriage.
While most earning members of the household purchase life insurance to protect their families against life’s unforeseen circumstances, we often do not think about purchasing life insurance for the homemakers in the family.
The homemakers, who are often stay-at-home mothers or housewives, might not have earning jobs but they play an extremely crucial role in the running of the household. They take care of the children, see to their studies, prepare food for the family, do the household chores, manage the monthly budget, and look after the elderly and ailing members of the family. Their hours of work do not extend from just 9-to-5, but they often work tirelessly for more than 12 hours a day, without any leaves or holidays.
In most households, the homemaker is sadly taken for granted and the work put in by her goes unrecognized and unappreciated by the rest of the household. It is only in the case of her unfortunate demise that the family realizes her true worth.
Evaluating the economic value of a homemaker
A homemaker is truly invaluable, and it is impossible to put a price on the love, dedication, and service that she gives her family. But let us set aside emotions for a moment and try to objectively evaluate the economic value of a homemaker.
By calculating her economic worth, we realize how essential it is for her to be covered by a life insurance plan. In her absence, the family might have to hire a full-time house help to look after the children, do the household chores and prepare food. They might also need to engage a tutor to help the children with their studies, as well as a nurse to look after the elderly members of the family.
While it might be possible to hire all the required help, it comes at a significant financial cost which can be incredibly stressful for a family who is in grief and under emotional strain. At this difficult time, a life insurance payout would go a long way in easing the financial burden of the family.
We must also consider that in certain cases, the homemakers are qualified to get back to work and they may choose to rejoin the workforce once their kids have grown up.
Benefits of a term plan for homemakers:
Substantial coverage for a nominal premium
Since these are generally pure protection plans without any additional benefits, a term plan offers a substantial life cover at an affordable premium. Most life insurance companies also offer lower premiums for women.
Advantage of early purchase
The earlier you purchase a term plan, the lower your premium is likely to be. By investing early in a term plan, the homemaker will benefit from the low premiums that remain the same over the whole term of the plan which could stretch 25-30 years.
While applying for the plan, the homemakers would also need to meet underwriting guidelines, just like other lives. Investing early, when one is likely to be in better health, would result in lower premiums.
More often than not, homemakers ignore their own health and medical needs due to the high cost of living and expensive medical treatment. Investing in a life insurance policy which has add-on health riders, can provide the necessary financial help in case the homemaker is afflicted with a critical illness such as female cancers.
Purchasing a term insurance plan would also provide tax benefits to the working spouse under different sections of the Income Tax Act, 1961. To completely understand these benefits, it is advisable to consult a financial advisor.
Peace of mind
Most of all, availing a term plan offers peace of mind to the homemaker. In her absence, she is assured that her family is financially protected, and the life cover can be used to keep the household and family running along with achieving important life goals.
Ideal amount of coverage for a homemaker
While it is difficult to put a price on the emotional benefits that a homemaker brings to the family, for the purpose of calculating the ideal amount of life cover, one can estimate the economic value of the homemaker. This can be done by identifying all the replacement costs that the family is likely to incur in case of her unfortunate demise. In India, as per general underwriting guidelines, the life cover of the homemaker cannot exceed that of the working spouse.
When calculating the life cover, the family also needs to consider any change in the career course that the working spouse might need to undertake in order to be more available for the kids as well as the elderly at home. With more nuclear families these days, it is entirely possible that the remaining spouse might need to quit their job so as to be there for the kids during this difficult time.
In conclusion, investing in a term plan for the homemaker is crucial as it would help to financially secure the family in its hour of greatest need. While there is absolutely no replacement for the homemaker, having life insurance would go a long way in easing the family’s financial burden and stress.
(By Karthik Raman, Chief Marketing Officer and Head-Products, Ageas Federal Life Insurance)