The primary purpose of life insurance is to provide financial protection for your loved ones should something happen to you. But because life insurance death benefits are often viewed as a replacement for lost income, there’s often a misconception that you don’t need life insurance for non-working spouses or stay-at-home parents.
But even if you aren’t collecting a formal paycheck as a stay-at-home parent, you’re providing valuable services that would need to be replaced if you weren't around. In your absence, your surviving spouse and family members would be left with a significant financial burden. So if you’ve ever asked yourself, “Should I get life insurance as a stay-at-home parent?”, here’s why the answer is likely to be yes.
THE FINANCIAL VALUE OF STAY-AT-HOME PARENTS
Perhaps the greatest responsibility of a stay-at-home parent is child care, and a newly widowed working spouse would likely have to find child care right away. The average married couple spends more than 10 percent of their household income on child care for just a single child, according to the nonprofit Child Care Aware of America.
And then there are the countless household duties that stay-at-home parents tend to take the lead on. From grocery shopping to cooking to scheduling every doctor’s appointment, a suddenly single parent would have many new tasks on their plate that they might have to outsource. This can add a lot to the family budget: The average hourly rate for a housekeeper is $15.50, according to Care.com data.
A stay-at-home parent’s life insurance death benefit can help cover these costs and potentially for as long as your children are living at home, depending on the amount of coverage you get. On top of all that, the money can help pay for immediate costs like funeral expenses (typically between $7,000 to $10,000) or even bigger things you were hoping to help your children with in the future.
HOW MUCH LIFE INSURANCE DOES A STAY-AT-HOME PARENT NEED?
Since stay-at-home parents don’t technically earn an income, determining the right coverage amount can be tricky. Ideally your death benefit should be able to cover your projected child care costs for little ones, and before- and after-school care costs for older kids. Take the long view and assume that these bills will be in place until your children turn 18. You’ll also want to estimate costs associated with housekeeping, home maintenance and future financial goals you want to help your kids with, such as paying for college, a wedding or a starter home.
Assuming the working spouse has life insurance, the stay-at-home parent should be able to get a policy that doesn’t exceed their partner’s coverage.
RELATED CONTENT: Our Life Insurance Guide can help you learn more about life insurance and how it can benefit your financial plan.
DIFFERENT TYPES OF LIFE INSURANCE
Let’s unpack the basics of how life insurance works. When you purchase a policy from an insurance company, you’ll make regular premium payments to keep your policy active. Should you pass away during your coverage period, your beneficiaries will receive a death benefit. There are two basic types of life insurance.
Term life insurance. You’re covered for a predetermined time period. Every policy is different, but common periods include 10 or 20 years, or until age 80.
Permanent life insurance. As long as you pay your premium, you’ll be covered for life. This type of policy is more expensive than term life insurance for the same amount of death benefit, but there are other perks. Your policy will accumulate cash value over time. While accessing your cash value will reduce your death benefit, it can be an easy source of cash to help with other financial goals.
The biggest draw of having life insurance is that it helps provide your family with financial peace of mind. This is reason enough for stay-at-home parents to consider getting a policy. If the death benefit is all you think you need, term life insurance may be enough. With that said, permanent life insurance has additional perks that are worth considering that can help strengthen your family’s financial plan.
With whole life insurance, for example, you’ll accumulate cash value that is guaranteed to grow and isn’t subject to market declines. Having this pool of money to draw on helps shield you from market volatility, strengthening your overall financial plan and giving you a source of funds that could be tax favorable and can help cover a financial emergency if you’re in a pinch.
Finding the right life insurance policy can feel like a tall order, so consider exploring different life insurance options with the help of a financial advisor. He or she can help you explore the right type of coverage for you and your family’s situation.