Why families need to get protection for non-working parents
- Katie Nutting, Personal Wealth Adviser
- 30 August 2024
- 5 mins reading time
Dealing with the illness or premature death of a partner can be emotionally overwhelming and financially stressful. While insurance can’t remove this emotional strain, it can provide much needed financial support during such difficult times.
Many of us believe the main purpose of family protection is to cover the main earner, but protecting a non-working parent is equally crucial. Non-working parents often take on the primary caretaker role, managing household responsibilities and childcare.
Their contributions, though not directly financial, are invaluable and essential for a household’s smooth functioning. The illness, disability or even death of a non-working parent can significantly disrupt family routines. Who will pick up and drop off the kids at school, do the grocery shopping or look after the children in school holidays?
Having appropriate protection in place, such as life insurance or critical illness insurance, can help cover the costs of the services non-working parents provide. These costs can be substantial. For example, an Office for National Statistics calculator shows that doing 12 hours of childcare, six of cooking, four of housework, four of laundry and three of transport every week, for example, is worth £17,080 a year.*
The working parent may also need to take time off or reduce working hours to manage the household. Protection can provide financial support during this period, allowing you to focus on family needs without the added stress of financial instability.
Protection options
Income protection insurance is designed to provide a regular income if you’re unable to work due to injury or illness. This can help cover essential expenses, such as household bills, mortgage payments and other everyday costs.
Some income protection policies are available to non-working parents, while others, such as life insurance and critical illness cover, are available to anyone regardless of employment status.
Critical illness insurance provides a payout if you are diagnosed with one of the specific medical conditions or injuries listed in the policy. This payout is usually a lump sum and the policy ends once the payout is made.
Life insurance provides a lump sum on the death of the policyholder, although some kinds of policies provide regular payments. For example, family income benefit pays regular monthly amounts.
A working parent may also have the option to take out private medical insurance for their non-working partner at relatively low cost via their employer. This could help ensure quick medical treatment to the non-working parent in the event of illness, accident or injury.
Even if you have savings set aside for emergencies, you may still want to consider taking out some form of protection. Having cover could allow you to keep the savings you may have set aside for other purposes. Protection can help ensure that, in a worst-case scenario, you are not merely surviving but could also maintain your preferred lifestyle.
Pensions and national insurance credits
Financial safeguarding can extend beyond insurance policies. Even if you’re not employed, you can still contribute to a personal pension and receive a contribution from the government.
As a non-earner, you can receive 20 percent tax relief, even if you don’t pay tax. A non-working parent can contribute up to £3,600 annually to pension, made up of their own contributions of £2,880 and an additional contribution of £720 from the government.
These pension savings can build up over time, although investment growth isn’t guaranteed, and could help provide financial support during difficult periods. But the non-working parent would usually have to wait until the age of 55 (or 57 from 6 April 2028) before they could make withdrawals from the pension.
If you’re a stay-at-home parent looking after children but don’t qualify for child benefit, it may be advisable to still make a claim. Even if you don’t receive direct payments, claiming child benefit ensures you receive national insurance credits. These credits are crucial for building up the state pension you’ll receive in retirement, helping to safeguard your financial future.
At Schroders Personal Wealth one of our key principles is to have regular reviews with an adviser. This can help ensure you and your family maintain appropriate financial safeguarding arrangements to help cope with parental illness or even death.
Source:
*Office for National Statistics (www.gov.uk), ‘Unpaid work calculator’, 24 July 2024.
Important information
Fees and charges apply at SPW.
Any views expressed are our in-house views as at the time of publishing.
This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or part) without our prior written consent.
Protection policies have no cash-in value at any time. If you don't pay your premiums on time your cover will stop, your benefits will end, and you'll get nothing back. If the benefit amount has not been paid out by the end of the selected term, the policy will end and you'll get nothing back.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn’t guaranteed and can go down as well as up. The benefits of your plan could fall below the amount(s) paid in.
In preparing this article we have used third party sources which we believe to be true and accurate as at the date of writing but can give no assurance or warranty regarding the accuracy, currency or applicability of any of the contents in relation to specific situations and particular circumstances.
Any views expressed are our in-house views at the time of publishing. This content may bot be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.
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