With the arrival of our third son, my wife has made the decision to leave the workforce. I give her props because I know, as every other parent knows, it’s much harder raising three young kids that working.
Don’t believe me? I invite you over to our house for a weekend.
When she leaves her job, we’ll be missing out on some of the wonderful benefits that come with a corporate job including her life insurance policy.
For working parents deciding how much coverage is needed can be pretty cut and dry. They know the salary their family would lose if they should pass, and that’s usually a great starting point for determining life insurance coverage.
But what about the parent who stays at home? If you are a stay at home mom or dad, deciding how big of a policy to take out can be a challenge. Deciding why one might need coverage, how much the at home parent is worth monetarily, and how much insurance coverage that translates to is a little more difficult to figure out.
Why Do Stay At Home Parents Need Life Insurance Coverage?
If you or your spouse is a stay at home parent, you may think that a life insurance policy on the stay at home parent is not a necessity. If one parent is not contributing to the family finances, having insurance coverage on that person might seem like a waste of money. Financial advisors would tell you this is simply not true.
If you have ever lost a loved one, you know how difficult the process can be. When your children lose a parent it can be downright devastating and heartbreaking, and emotionally tolling to deal with for everyone involved. On top of the emotional upheaval comes a unique set of financial challenges. Unexpected illness or tragedy may come at a surprising cost, not to mention the funeral and burial fees.
If there is no life insurance policy to help meet the financial expenses related to the death of the parent, the family could be faced with financial hardship. This could potentially mean the surviving spouse may struggle to make the mortgage payment, feed the family, and take care of other financial responsibilities. They may be forced to find additional employment, having to leave the children for extended periods in child care.
Having a life insurance policy in place will help to ease financial constraints and allow your family to begin the healing process, without having to worry about whether or not the bank will reposes the family home or where money is going to come from to pay for groceries.
How Much Is A Stay At Home Parent Worth?
If stay at home parents were paid what they were worth, they would in many cases make more than their partners. When you think about it, stay at home parents are usually the ones providing care to the kids, doing all the shopping for the household, as well as the cooking and cleaning. They are often the ones chauffeuring the kids to activities, doing the household book keeping, and so much more. Many would argue that parents who stay home and do not work out of the home are undervalued.
A study conducted by Salary.com in 2009 looked at stay at home parents and determined that their average hours per week came to 96, over double that of a typical American 40 hour work week. The study concluded that if stay at home parents were compensated for their time, their average yearly salary would be $122,732.00.
To put that into perspective, Insure.com did a similar study referred to as the “The Mother’s Day Index”, that estimated that a mom’s annual salary would be around $61,436
How to Determine How Much Coverage You Need
When you look at what a stay at home parent’s salary should be, the life insurance coverage you need is probably a lot higher than what you might have thought is should be and not getting coverage is not really an option. As already stated, if something should happen to you, your spouse would most likely struggle financially to fill your shoes.
When you look at the amount needed to cover a parent who stays home for ten years you are looking at a total of $1.2 million and for a period of 20 years $2.4 million and those figures do not take inflation into account. If you are a stay at home parent and something should happen to you, having a term life insurance policy in place to cover what you are worth can greatly help to reduce the financial burden on your spouse.
When deciding on how much life insurance coverage you should get, you should look at what tasks the stay at home parent actually performs and determine how much it would cost to hire someone to perform such tasks. Having money to cover these expenses can help your entire family adjust if you were gone. Of course there are other factors to consider when taking out a policy.
Depending on the cost of living where you currently live can make a difference in how large a policy you will need. How many children you have should also be considered. Does one of your children have special needs that would require a higher cost in care? Does your spouse or any of your children have health issues that would also require money for extra care? Taking all of your individual circumstances into consideration will help narrow down how much coverage is needed.
Deciding On a Policy
Now that you can see how important it is for parents who do not work out of the house to have a life insurance policy, you should take the steps needed to get coverage. When deciding on an insurance policy it will be critical for you to make sure you take the time to look at several companies and carefully compare them looking at the difference in coverage from one company to the next.
Cost will, of course, also be a factor. You will want to make sure you also compare price quotes and choose one that offers a reasonable rate that fits your family’s current and predicted future budget.
Finally, you will need to look at the differences between term and life policies to decide which one will best fit your lifestyle needs. Both offer their advantages and disadvantages, and depending on your unique financial and family situation one might fit your needs better than the other.
Jeff Rose is an Illinois Certified Financial Planner and also offers term life insurance in Illinois. Jeff authors the blogs Good Financial Cents and Soldier of Finance. He is a father of 3 awesome boys, husband to the coolest chick on the planet, In-N-Out Burger junkie and Crossfit addict.Posted in Insurance on 01.20.12 with 3 comments.