PROPERLY VALUING MOTHERS FOR INSURANCE

The financial business is often associated with life events.  One such event is the birth of a child.  And though that’s far from the only time women consider insurance, it does often act as a prompt to get them to consider the longer-term considerations now in play.

How to value the appropriate coverage to consider can be somewhat complex.  That’s the subject of this month’s article which looks into the factors we consider.

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The standard approach for determining insurance need begins with discounting the
loss of future income if someone becomes disabled or deceased. This makes for a good start, but deeper inquiry and analysis is necessary to arrive at an amount of coverage that truly reflects the economic impact for a family that loses a mother.

In addition to looking at her income, two critically
important areas must be explored:

1. What is the value of her unpaid labour that will
have to be replaced?

2. How will her absence affect the income prospects
of a surviving spouse?

Here are some key observations on the economic well-being of women from Statistics Canada:

• Women are more likely than men to participate
in housework activities, and they spend more time
doing so.

• While both mothers and fathers spend more time
on child care than 30 years ago, women have
increased their time with children to a greater
extent than men.

• A greater proportion of women than men perform
routine child care tasks on a given day, and spend
more time doing so.

• Women are overrepresented as caregivers to adult
family members or friends, particularly when the
care recipient has a long-term health condition or
a physical or mental disability.

So, apart from the time of the unpaid labour, can we
put a dollar value on this?

Every year, salary.com publishes an estimate of what
a mom would earn if paid in the open market. While
acknowledging that it cannot assign a value to all
features of parenthood, the site draws from about
three dozen job categories to represent the core
competencies of motherhood.

The most recent estimate of median annual salary
for a stay-at-home mom is US$178,201. This number
helps illustrate the wide breadth of a mother’s
contribution to the family, on top of it being unpaid.

Progress over the Decades

Labour force participation of women increased from
the 1960s at the same time as women were gaining
more access and control over household resources.

Consider how women’s economic well-being has
evolved, according to Statistics Canada:

• Women’s average personal income more than
doubled in constant dollar terms from 1976 to
2015, with the gender disparity in income being
cut in half over that 40-year stretch.

• Women’s earnings make up a larger share of
family income than ever before. In dual-earner
families, the woman contributed 47% to the
family’s income in 2015.

• Women’s workforce participation has enhanced
the security of couple families. Generally, these
families are more resilient to the rising cost
of living, downward wage pressure for men,
and unemployment.

• Dual-earner families are also better protected in
recessions, with women experiencing fewer job losses
due to their larger representation in such non-cyclical
sectors as education, health care, and government.

These trends in women’s work participation and
income growth are self-evidently beneficial to affected
women personally. As well, society overall is better off,
both in the social sphere and in the economic benefit
of the fuller participation and contribution of women.
And finally, spouses and families are able to enjoy more
abundant, diversified, and stable financial lives.

She-cession

Unfortunately, COVID-19 has had a disproportionate
effect on women’s employment and income, which, in
turn, affects their families.

In the early stages, women’s employment declined by
7% compared to 4% for men. This is due in part to
higher participation in sectors susceptible to closures
(retail, personal care services, hospitality).

And with the onset of school closures, approximately
64% of women reported that they were the parent
conducting homeschooling or helping children with
homework compared to 19% of men.

This current experience emphasizes a mother’s value
and the economic exposure when her contribution is lost.
There is plenty that can be learned from the Statistics
Canada research and other sources about the economic
condition of women in our society. It can and should
motivate individual and collective action toward greater
gender equality.

For current purposes though, let’s look at what this means
at the individual household level. In particular, what
economic hardship might befall a family if mom dies or
becomes disabled, and where does insurance fit in?
While life and disability insurance have many
uses, their primary purpose is to replace lost
household income.

The positive progress in women’s employment and
income over the decades provides both direct and
indirect evidence of why and how much harm may
be inflicted if tragedy hits. There’s
double damage in the case of disability due to
additional cost of care, and of course it’s especially
devastating for a single mother family.

The obvious direct impact is the actual income that is
no longer coming in. The less obvious part in the case
of a dual-earner family is the loss of stability
and diversification.

Though it may not be easily quantifiable, it would be
helpful for a couple to anticipate and assess how the death
or disability of one of them could affect the practical and
financial viability of the survivor’s continuing occupation.
This brings us back to all that time mom spends on
unpaid household/family activity. In mom’s absence,
some of those tasks may be outsourced, but money is
no proxy for a parent’s presence, love, affection, and
attention. To continue to fulfill that role, dad may need
to change his work routine, and possibly even make
some broader career adjustments.

In this respect, in addition to replacing mom’s lost
income, insurance can also stand in for the reduced
income dad may experience due to increased
caregiving demands. Whether this is a temporary
measure or a permanent new normal, the family is
given the time to grieve, heal, and look to the future in
financial security and comfort. ©

Written by Doug Carroll, JD, LLM (Tax), CFP, TEP,
tax and estate planning specialist with Aviso Wealth.
He can be reached at doug@douglascarroll.ca.