When deciding how much life insurance you need, the critical factor is typically current and future income. But what about families, like mine, where one spouse doesn’t earn a traditional income? Elementary math taught us that anything times zero equals zero. So, can stay-at-home parents skip life insurance?
No.
The loss of a stay-at-home parent would be devastating to most families. Not just from the emotional strain of losing a loved one, but financially as well. And life insurance can help ease the burden.
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The Financial Contribution of a Stay-at-Home Parent
My husband, Jeremiah, became a stay-at-home dad two months before our oldest was born. He had projects to tackle around the house and stopping early meant we had more time to relax together during the holidays.
Today, with two young boys at home, the household tasks he tackles are innumerable. Childcare, grocery shopping, laundry, taking the boys to activities and doctors’ appointments, maintaining the yard, and walking the dog. The list goes on and on.
Last year, Salary.com analyzed the value of a stay-at-home parent. (They called the study “Moms: We know you’re worth it.” But I’m going to set my boiling rant about ignoring stay-at-home fathers aside for a second.) What they found was that the median average salary for a stay-at-home parent was $162,581.
Replacing the functions served by a stay-at-home parent might not cost you that much. You’re unlikely to hire 96 hours a week of help. But Care.com found that one in three families now spend 20% or more of than annual income on childcare alone. Picking up a $10,000 annual cost, per child, is going to weigh on any budget.
Even if your salary would allow you to cover the additional cost, doing so might sacrifice your future goals. If the extra cost of childcare, home maintenance, and support would limit your ability to save for your children’s college, you may want to consider a life insurance amount for the stay-at-home parent to cover that goal.
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Creating Stability & Comfort For Your Children
When it comes down to it, life insurance for a stay-at-home parent isn’t just about replacing the work they are doing. Losing a parent is one of the more traumatic things that can happen to a child. And being forced to rapidly change their lifestyle as well, sending them to daycare or hiring a nanny, can be hard on a child that isn’t already emotionally strained.
Consider whether the working parent would want to take a step back at work, at least for a while, to grieve and comfort your children. When we priced policies for Jeremiah, I built in a year of expenses.
How Much Life Insurance Does a Stay-At-Home Parent Need?
Alright, so we know stay-at-home parents need life insurance. Now, it’s time to determine how much.
Since there isn’t a traditional income to build off, this requires some consideration of your unique family financial situation.
- How long might you need childcare, including before and after school, and how much would it cost?
- What does your budget look like after accounting for those new costs?
- How much do you need to cover those costs while continuing to fund your financial goals (retirement savings, college savings, etc.)?
- How long until your children move out of the house? (The number of years you’ll have to handle those added costs above.)
- Does the stay-at-home parent care for aging or special needs family members as well?
- Would the surviving spouse want to take time off work? How much would that cost (including health insurance)?
- Would you want to move to be closer to family? Or make other lifestyle changes?
- What type of burial service does the stay-at-home spouse want? The median cost of a burial in 2017 was $7,360. (Over $2,800 for cremation without a viewing.)
After considering these questions, add up your costs. This should give you a baseline idea of how much coverage you need.
For Jeremiah, we chose a $500,000 policy. Our boys are still young, and we are close to financial independence which does influence our choices. But I knew I would want to take some time away from the blog and writing if anything were to happen.
Jeremiah is 34-years-old and in good health, so not only could he get a policy from Bestow without a medical exam, his 20-year policy only costs us $28 a month. And dropping it to a $250,000 policy would have saved us less than $10. So, we went with the comfort that a bit extra cushion could provide.
How long should the policy last?
Typically, stay-at-home parents want life insurance to cover until their youngest is out of the house. While kids do become more self-sufficient over time (right?! Promise me, you guys!), they still need oversight and care.
However, be sure to consider your family’s long-term plans. If the stay-at-home parent is expected to support aging parents or special needs family members, you’ll need to factor that into your timeframe.
Buying Life Insurance to Cover a Non-Working Spouse
We’re at the final step. Actually getting quotes and purchasing life insurance.
A term life policy is simple and more cost effective than whole life insurance, especially for stay-at-home parents. Non-wage-earning moms and dads don’t need coverage for life, so term gives you coverage only when you’re most likely to need it.
But before shopping for term life insurance for a stay-at-home spouse, you need to know that things are quite as cut and dry as they are for an employed adult.
Without a traditional income to protect, the standard insurance underwriting algorithm needs more factors to consider. (An underwriting algorithm is a fancy formula to determine whether you actually need the coverage you’re applying for. Without incentivizing you to do stupid, risky things. And ensuring you can pay for it).
This makes it less likely that you’ll get temporary coverage while you wait for a medical exam and final quotes because the process is unique. A less than optimal scenario, but still better than being uncovered forever.
Here’s what insurers will want to know:
- Coverage on wage-earning partner: How much life insurance does your family have on the income-earning spouse? This is usually the maximum coverage a stay-at-home parent can receive.
- Reason for life insurance on stay-at-home parent: Is the stay-at-home parent in school and planning on returning to work? Do they plan to go back to work at some point in the future? Are you just looking to cover childcare and other expenses?
- Assessing your financial situation: What does your family have in net assets? How much is in your name specifically?
If the working spouse has life insurance, the process is usually much faster. Especially if you are applying for coverage at the same provider.
Keep in mind, providers with online life insurance processes, like Haven Life or Bestow, may not offer policies for stay-at-home parents without a medical exam. This is because as technically unemployed individuals, the process requires an underwriter.
Luckily, these exams are typically fast and easy to schedule. With no cost to you. Never ditch coverage just to skip a quick medical exam.
Pro tip: Getting Coverage Before Leaving a Job
If you’re about to have a child or leave your job to become a stay-at-home mom or dad, apply for life insurance coverage before you quit. Having a current income makes the whole process easier and faster. With fewer questions about your family’s personal situation.
An added benefit of getting coverage before leaving a job is that you apply earlier. Even if your baby isn’t born yet, life insurance coverage is cheaper when you’re young and healthy.
Are You Protecting What Matters Most?
Grab our free Financial Emergency & Estate Planning Checklist to make sure you’re prepared for anything life may throw at you!
Remember Stay-at-Home Moms and Dads in Insurance Planning
Stay-at-home parents offer enormous financial value to their families. I know our house would come to a screeching halt without Jeremiah. (Not least because I would be sobbing uncontrollably in a corner.) This makes it crucially important to have reasonable term life insurance coverage to help avoid financial hardship in an already difficult time.
If your family doesn’t have coverage, get a quote today and start the process.
Great and well thought out article. Thanks, Chelsea.
That figure from Salary.com is mind-boggling. I think I’ll quit and become a SAHM. I’ll get paid better 😉
In all seriousness, another cost which is important to consider is therapy. Therapy to deal with the premature loss of a parent can be very expensive. I have seen that with my clients.
And in one specific case, a father who lost his wife and was left with 3 teenagers wanted to build into his 5-year budget extra family vacations to Europe, etc. so he could have special time with his kids before they all grew up and went their different ways.
It’s hard to imagine when you’re not there. I think your choice to take the bigger policy for a small difference in price makes sense. It will give you more flexibility and more choice “if”.
May you never need it!