Here’s the deal: if you’re a parent, you need life insurance. A lot of people think that you only need life insurance if you have a direct income to protect. For families with a stay-at-home spouse, that means the primary breadwinner has plenty of insurance, but the person at home is woefully underinsured.
Salary.com estimates that, once you add up all the work that stay-at-home parents do, you’d need to pay them a salary of $112,962 per year. Without life insurance, how would a surviving spouse be able to afford to replace the work a stay-at-home spouse does?
In this article, we’re going to explain why stay-at-home parents need life insurance, how they should calculate their life insurance needs, and tips on shopping for life insurance as a stay-at-home spouse.
Why stay-at-home parents need life insurance
A lot of financial advisors simplify life insurance by telling you that its primary purpose is to replace your income in the event that you die prematurely. That’s partially true, but it’s not the whole story.
Life insurance is designed to protect your entire financial plan, which can include debt like student loans, long-term goals like saving for college, and day-to-day needs, like income replacement and childcare costs, in the event that you die prematurely.
The loss of a stay-at-home parent would be more than an emotional hit – it’s also a huge financial hit for the family. While many stay-at-home parents don’t provide a direct income, they provide childcare and take care of the home’s budget, food supply, and more. I don’t really have to go into all of the things stay-at-home spouses do – if you are a stay-at-home spouse or you’re married to one, you already know how crucial they are to the household.
I asked Tai McNeely, who runs His and Her Money with her husband, Talaat, about why stay-at-home parents need life insurance:
I cannot stress the importance of stay-at-home parents having life insurance enough. A stay-at-home parent’s role in the home is literally priceless. I can totally relate to this because I, too, am a stay-at-home mom. If something were to happen to me, my husband would need to hire a live-in nanny, cover childcare expenses, a personal chef, a maid, a chauffeur, a butler, and an accountant. The list is truly endless.
Some stay-at-home parents may be able to get life insurance coverage by buying what’s known as a "rider" on their spouse’s policy. Depending on the type of rider this is, you may be able to get the same coverage through one policy. There are downsides to this approach, however – not all spousal riders offer the same coverage, and some are more expensive than just buying a standalone policy.
Generally, we suggest buying separate term life insurance policies for both spouses.
Term v.s. Whole life insurance
The biggest question that life insurance shoppers have is, "Which is better for me, term life insurance or whole life insurance?" We can tell you, without a doubt, that term life insurance is the best fit for the majority of American families. It’s relatively affordable – 4 times less expensive than whole life insurance – and you only need to pay for it when you really need it.
Watch our video on term life insurance v.s. whole life insurance for more information on the big differences between these two products:
Watch out for insurance caps
It’s been the rule of thumb for many years that stay-at-home spouses would have caps on the amount of life insurance they could buy – generally, 50% of the breadwinner’s coverage. This is mostly for sustainability reasons: it prevents families from buying more life insurance than they can afford.
However, some carriers are beginning to allow stay-at-home spouses to purchase more life insurance, depending on their household income. In general, it’s possible to purchase 75 - 100% of the breadwinner’s coverage or more, depending on your financial situation.
Keep this in mind while walking through our next section, which will help you calculate how much life insurance you need. You may need to adjust your final coverage depending on how much your life insurer will let you purchase.
How much life insurance stay-at-home spouses need
When calculating how much life insurance you need as a stay-at-home parent, Tracie Fobes, owner of Penny Pinchin’ Mom, suggests that spouses "make a list of everything that the stay-at-home parent does during the day. [They] will get a better idea of the services that would need to be covered, which is instant financial stress upon the surviving party."
For most stay-at-home parents, childcare costs are the primary potential expense that life insurance would cover. Spouses should discuss what they would want to do if the stay-at-home parent passed away. Should the surviving parent hire a live-in nanny? What about daycare or a part-time babysitter?
Once you decide what you’re both comfortable with, you can start making calculations of how much the life insurance policy should cover. Talk to friends about how much they pay for childcare, or call around for quotes from local companies. Remember to take into account how many years of childcare you would expect to cover.
Don’t stop at just childcare, however – remember back to McNeely’s list of all the services her husband would need to hire? Your surviving spouse may not need all of those services, but think about what they will need. Will they need an accountant? A weekly or bi-weekly maid service? Don’t be afraid to budget these things into your life insurance policy.
Remember your own debts, as well. If you have credit card debt, student loan debt, an auto loan, or mortgage – or any other type of debt – in your name, cover it in your life insurance policy. This will help your surviving spouse instantly pay off those debts if you should pass away.
You can also start thinking about whether or not you want your life insurance policy to contribute to long-term goals like college savings or paying off the mortgage. While this would normally be covered by your spouse’s income, you may want to consider shifting the burden to a life insurance policy so that their income stream can be used for new costs that crop up because of your death.
McNeely also suggests thinking of "elderly parents that may need to be taken care of" or other "family members that depend on you." You may want to provide some money to take care of them after you’re gone.
Your final coverage amount
Once you add up your estimates and combine them with hard numbers like your current debts, you’ll have a good idea of what coverage amount to look for. Additionally, you’ll want to know how long you need that coverage for. For example, if you’re only looking to cover potential childcare costs until your kids are in elementary school, you may want to look at a short, ten-year term policy.
Life insurance: one of the most important financial products for stay-at-home parents
Tai McNeely tells all of her readers that "life insurance should fit in everyone's financial plan, regardless if you’re married, single, employed, or a stay-at-home spouse. One's financial health would not be at its best without life insurance."
For stay-at-home parents, specifically, life insurance is an oft-overlooked product that has the potential to save your family from financial heartache in the event of some real emotional heartache. Remember: life insurance doesn’t just protect a breadwinner’s income. Life insurance is about protecting your entire financial lives, from the biggest debts to the smallest day-to-day tasks.