In recent times, there are so many things stay-at-home parents need life insurance for. This is because they contribute immensely to their families in ways that go beyond money. Although they may not earn a paycheck, their role is just as crucial in terms of financial value.
Based on research, families spend around 24% of their income on child care. If something were to happen to a stay-at-home parent, the parent alive would likely need to cover different expenses. This is the point where life insurance for stay-at-home parents is essential. It provides financial support to cover these costs if the unthinkable happens.
Why Stay-At-Home Parents Need Life Insurance
The main purpose of life insurance is to replace lost income and help your family stay financially stable if you pass away.
While it’s easy to see why an income-earning parent would need coverage, stay-at-home parents should also think about life insurance. If something happens to them, it could help cover the cost of essential services they used to provide, like:
- Child care
- Housekeeping
- Driving
- Managing finances
- Cooking
- Teaching
- Pet care
According to our research, the value of a stay-at-home parent’s work is $184,820 per year. While not every parent does all these tasks, it highlights how much their contributions are worth. If the stay-at-home mum or dad passes away, the other parent may face significant expenses to replace these services and keep things running smoothly at home.
What Life Insurance for a Stay-at-Home Parent Can Cover?
A life insurance policy is designed to help the surviving parent manage household expenses and tasks that the insured used to handle. If the life insurance company approves the death benefit, the beneficiaries can receive the payout in several ways, including:
- Lump-sum payment: Most people choose to receive the benefit in one large payment. This can help pay off big debts, like a mortgage. But it can be risky if the money isn’t budgeted well for long-term needs, like child care.
- Regular payments: Instead of one lump sum, the beneficiary can opt for smaller monthly payments. For example, a $500,000 payout could be divided into $2,083 per month for 20 years. This helps ensure the money lasts over time. Taxes would be due on the interest earned.
- Retained asset account: The funds can be placed in an account that earns interest, similar to a checking account. You’ll get statements and can write checks to cover things like child care or household services.
- Life income annuity: This option provides steady income for the rest of the beneficiary’s life, with the amount determined by their age and the death benefit.
Each option offers different ways to help the surviving parent manage future financial needs.
How Much Life Insurance Should a Stay-At-Home Parent Get?
Even though these mentioned parents don’t earn a paycheck, it’s important to have enough life insurance to cover the services they provide for the family. To figure out the right coverage amount, think about how much it would cost to replace those tasks if they were no longer around. You’ll also want to consider whether the surviving parent may need to cut back on work hours to spend more time at home.
Here’s how to estimate the coverage:
- Child care costs: Look into the costs of child care in your area, such as daycare or after-school programs. If the working parent has a demanding job or travels often, hiring a nanny might be a better fit. For larger families, expect higher child care expenses and adjust the coverage accordingly.
- Household help: If the stay-at-home parent handled chores like cleaning, you may need to hire a housekeeper. On average, housekeepers cost about $15 per hour, which should be factored into your coverage needs.
- Children’s ages: Your policy should provide enough to cover expenses until your kids are old enough to no longer need child care.
- Changes to the surviving parent’s work: If the surviving parent plans to take time off to grieve or work fewer hours to spend more time at home, you’ll need a higher death benefit to cover the loss of income.
Other Reasons Stay-at-Home Parents Should Consider Life Insurance
A life insurance payout can do more than just cover child care costs—it can also help with final expenses. The average funeral with burial costs around $7,848, and that doesn’t even include cemetery fees or headstones. Plus, there may be leftover medical bills or other expenses that need to be paid.
Life insurance can provide a lasting financial gift for your children. Stay-at-home parents can use life insurance to create an inheritance by setting up a trust for their kids.
While not the primary reason people buy life insurance, having a policy is also helpful in case of a divorce. Lovell explains that it’s smart to get life insurance when you’re young and healthy, as it’s cheaper. If a divorce happens later, it can be harder or more expensive to get coverage, especially if either parent develops health issues.
What Type of Life Insurance Should You Get?
There are two main options available when it comes to life policy: term life and permanent life. Term life covers you for a set number of years, usually 10, 20, or 30, while permanent life offers lifelong coverage. The choice depends on your family’s financial needs and future plans.
Why Term Life Insurance Might Be Best
Term life insurance is often recommended for stay-at-home parents because it’s affordable and offers the coverage your family needs. You can select a term long enough to cover your children’s school years, ensuring they’ll be cared for financially if anything happens to you.
Why Consider Permanent Life
Permanent life insurance, such as whole life or universal life, costs more but provides lifelong coverage. This might be a good option for higher-income families who have already saved for retirement, have an emergency fund, and are planning for college costs.
A permanent policy also builds cash value over time, which you can use later in life, offering flexibility.
However, permanent life insurance can be expensive for young families with tight budgets. If you can’t afford it now but want the option later, many term policies allow you to convert to a permanent policy when your financial situation improves.
You could take advantage of this option if you return to work and have more room in your budget.
How to Buy Life Insurance
Working with an independent insurance broker is often the easiest way to find the right life insurance policy. They can gather quotes from different companies and help you compare options. If you’d rather handle it yourself, you can shop around online to find the best deal.
When you apply, be prepared to provide detailed personal information so the insurer can determine your rate. Even if you don’t have an income, you can still get coverage, as long as your spouse has a life insurance policy too.
However, you might face challenges if you’re trying to buy a larger policy than your spouse has or if your spouse doesn’t have life insurance at all. You can meet with an independent broker if you find it difficult getting coverage. They can help by writing a letter to the insurance company, explaining why you need coverage, even if you’re not the primary breadwinner.
