Do stay-at-home parents need life insurance? It’s a question often overlooked, as many assume that only income-earning parents require coverage. However, the financial support provided by a stay-at-home parent should not be underestimated. Skipping life insurance for the stay-at-home parent could be a costly mistake. According to Jason Hill, founder and president of Client Focused Advisors, replacing the invaluable contributions of a stay-at-home mom like his wife would come at a significant expense. Therefore, it is crucial to consider obtaining life insurance even if you’re not working at a paying job.
How Much Life Insurance Coverage Do Stay-at-Home Parents Need?
Determining the appropriate amount of life insurance for stay-at-home parents can be a challenge since they don’t have a specific income. However, there are important factors to consider in order to arrive at a suitable coverage amount.
Consider the number of children you have. As Jason Hill advises, larger families should aim for a more substantial life insurance policy to account for higher childcare expenses. Research the costs of childcare facilities, after-school care, or hiring a babysitter in your area. Ensure your coverage is sufficient to cover these expenses until your children reach an age where they no longer require care. Additionally, factor in the potential costs of hiring help for tasks you currently handle, such as house cleaning or lawn maintenance.
Another aspect to ponder is whether the stay-at-home parent plans to return to work in the future. If so, estimate their expected income upon reentering the workforce. Hill explains that as your household income increases, your spending will likely follow suit. It’s crucial to have enough life insurance to replace the anticipated income, ensuring your family can maintain their accustomed lifestyle. By securing ample coverage now, you can secure a lower rate compared to purchasing additional coverage later on.
To determine the ideal coverage amount, consider consulting a financial advisor who can analyze your household’s assets and expenses. The National Association of Personal Financial Advisors can help you find a fee-only planner, or you can explore the services of planners who charge by the hour through the Garrett Planning Network. Their expertise will assist you in calculating the necessary coverage for your specific circumstances.
How Stay-at-Home Parents Provide Financial Support
Even though stay-at-home parents don’t earn a paycheck, their contributions to the family are significant. Without them taking care of children, managing household tasks, and running errands, the need to hire someone to fill those roles would arise.
According to Salary.com, the estimated median annual salary for the various jobs performed by stay-at-home moms is an impressive $184,820. While you may not have to hire professionals like logistics analysts or consumer loan officers, expenses for daycare or a nanny would still add up significantly.
Care.com’s Cost of Care Survey reveals that in 2021, the average weekly cost for childcare centers was $226, after-school care was $261, and a nanny could cost up to $694 per week. These figures translate to an average annual expense of $11,752 to $36,088 per child for childcare alone. Moreover, these costs are continually rising.
Should anything happen to the stay-at-home parent, the burden of these childcare expenses might fall upon the working parent. However, with adequate life insurance coverage, the death benefit can cover these costs and ensure the family’s finances remain stable.
What a Stay-at-Home Parent Provides
Aside from childcare, stay-at-home parents handle numerous other essential household tasks that a working parent may not have the capacity to take on. In the absence of the stay-at-home parent, the surviving spouse might need to pay for additional services to keep the household running smoothly, such as housekeeping, laundry, gardening, pet care, meal preparation, tutoring, and transportation. The cumulative cost of these seemingly small responsibilities would be significant if they had to be outsourced.
Other Reasons to Consider Life Insurance
Life insurance not only provides a financial safety net for the surviving parent to cover childcare costs, but it can also help alleviate the burden of final expenses. The National Funeral Directors Association estimates the median cost of a funeral with burial at $7,848, excluding cemetery, monument, or marker costs. Additionally, there may be medical bills and other expenses to address.
Moreover, stay-at-home parents may want a life insurance policy to leave a legacy for their children. By placing life insurance in a trust, an inheritance can be passed down to the next generation, as noted by Stephen F. Lovell, president of Lovell Wealth Management.
Furthermore, having life insurance can be valuable in the event of a divorce. It’s advisable to obtain coverage while young and healthy to secure a lower rate, regardless of the reason for purchasing it. If a divorce occurs later on, a parent without a policy might find it challenging to obtain affordable coverage, especially if they have developed health issues.
What Type of Life Insurance Should You Buy?
There are two primary types of life insurance: term life and permanent life. The choice between the two depends on your family’s financial situation and goals.
The Case for Term Life
Jason Hill typically recommends term life insurance for stay-at-home parents as it offers affordable protection for families. For example, a healthy woman aged 30 to 35 could secure a 20-year term life policy with a $500,000 death benefit for approximately $20 to $30 per month.
Choosing a term that covers the years until your children graduate high school or even college ensures funds will be available to care for them if something were to happen while they are still young.
The Case for Permanent Life
Permanent life insurance, such as whole life or universal life, comes at a higher cost than term life insurance. It may be suitable for higher-income families who have already addressed other financial planning needs, like maximizing retirement savings, establishing an emergency fund, and saving for their children’s college education.
One advantage of permanent life insurance is its cash value component. Over time, the policy accumulates cash value that
can be utilized later in life. This can be particularly appealing for stay-at-home parents who are unable to contribute to a workplace retirement savings plan.
While the cost of a permanent life insurance policy with substantial cash value may deter young families managing other expenses, there is an option to convert a term life policy to permanent life insurance if circumstances change and a larger household budget becomes available.
Buying a Life Insurance Policy
Engaging an independent insurance broker is recommended as they can provide quotes and compare policies from multiple insurance companies. If you prefer a do-it-yourself approach, take the time to shop around for the best policy at the most competitive price.
During the application process, you will need to provide detailed information about yourself to enable insurers to calculate your rate. Your lack of income shouldn’t hinder your ability to obtain coverage as long as your spouse has life insurance. However, difficulties may arise if you’re attempting to buy a policy while the income-earning spouse does not have coverage or is not applying for it simultaneously.
It’s worth noting that insurers typically issue a policy for a dependent spouse that is worth 75% to 100% of the in-force policy on the employed spouse. If you encounter challenges in obtaining coverage, having an independent insurance broker can be advantageous. They can write a letter to the insurer explaining your situation and the importance of life insurance for a non-income earning household member.