Photo: Leonid Mamchenkov
Generally, financial gurus recommend that you get 5-20 times your annual income in life insurance coverage. But what if you have no income because you’re a full-time stay-at-home parent? Or what if you contribute a few hundred bucks a year to the family bank account with your side job while you mostly stay home with the kids?
We all know that anything times zero is zero, but that doesn’t mean that a stay-at-home parent should not have life insurance.
In fact, as a stay-at-home parent, you make hugely valuable contributions to your household, contributions that would cost your family a pretty penny should something happen to you.
According to a recent Salary.com survey, the services of a stay-at-home mom in 2012 (sorry, dads, you weren’t part of the survey this time) would cost about $113,000 if you had to outsource those services. The survey looked at the services provided by a typical homemaker, including housekeeper, child care, chauffeur and more. If you had to outsource all those services, you’d pay a lot to do it.
But does that mean that a stay-at-home parent needs more than $1 million in life insurance? Probably not.
The truth is that in single-parent households, not all of these services are outsourced. Yes, if something happened to you, your spouse would have to pay for day care and would probably like to pay for extra services like housekeeping. But plenty of working single parents clean the house, make the lunches, plan the doctor’s appointments, run to school and soccer practice, and work.
The Goal is Something In Between
While your stay-at-home parent services are invaluable for your family, you don’t want to wind up with more life insurance than you can afford. So when you’re deciding how much term life insurance coverage to buy for yourself, you’ll have to do some personal calculations and some hard thinking.
Here’s one process for deciding how much life insurance to carry on the stay-at-home parent in your family:
First, talk about what life would look like if that parent died. No one likes to think about this possibility, but to make good life insurance decisions you must.Which services would the surviving spouse need or want to outsource? Look into the cost of full-time child care in your area and include that in your calculations.You may also want to check out things such as housekeeping services.
Remember to look at the ways a stay-at-home parent saves your family money, as well. For instance, many stay-at-home moms are able to shave hundreds off the monthly grocery bill by meal planning, couponing and cooking at home. If something happened to this parent, the family’s food costs could go up quite a bit.
Also look into counseling services. If something happens to your children’s primary caregiver, chances are they’ll need some professional help to cope in a healthy way. How much would some basic grief counseling or therapy cost your family?
Again, it’s not fun to think about these possibilities, but it’s essential to choosing the right amount of life insurance for a stay-at-home parent.
Second, research how much life insurance coverage would cost. Term life insurance rates are typically low. But if you’re a one-income family living on a tight budget, you may not be able to afford much coverage. On the other hand, if rates are very low, you might be able to afford the luxury of more coverage.
The key is to make sure you can pay for it, even if you get into a tight place financially. Not paying your premiums can result in a termination of coverage, which is not a place you want to find yourself.
Finally, choose how much coverage you want. Your best bet is to apply through a broker, so you can get the best deal on the amount of coverage you need. It’s also easy to get life insurance quotes online.
Having the right type of life insurance coverage for both parents in a family can give you peace of mind, knowing that you’re protecting your family, and especially your children, in the worst possible circumstances. If one partner in your family stays at home with the kids, figuring up life insurance can be more complicated, because you can’t just multiply your annual income. But taking the time to figure out how much life insurance the stay-at-home parent needs is an important step in making sure your family is well protected.