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One of the top reasons for getting a life insurance policy is to help replace your income if you have loved ones who are counting on you for financial support. But if you’re not in a paid job, should you even go through the trouble of getting coverage?
In a word, yes.
Because couples often assume that only the income-earning parent needs life insurance, they often skip the stay-at-home parent coverage, said Jason Hill, CEO of Client Focused Advisors and founder of CFAInsure.com.
However, it is a mistake to overlook the financial support of a stay-at-home parent.
“If I had to replace what my wife does, it would cost me a fortune,” says Hill, whose wife is a stay-at-home mom.
How stay-at-home parents provide financial support
Although stay-at-home parents do not take home a salary, they provide substantial support for their family. If they weren’t there to take care of children, prepare meals, run errands, or perform other household tasks, someone would have to be hired to fill those roles.
Salary.com estimates that the mean annual salary for all jobs that stay-at-home moms perform is $ 178,201. Granted, you don’t necessarily need to hire someone to perform some of the tasks that Salary.com included in its estimate, such as a judge, logistics analyst, or social media specialist.
But you would have to pay for daycare or a nanny if something happened to the stay-at-home parent in your family. And that in itself is quite a hefty expense.
According to Care.com’s Cost of Care survey, the average weekly cost for a daycare center was $ 215 in 2019. The average weekly after-school cost was $ 243, and the average weekly cost for a babysitter was $ 565. Based on these figures, a family could pay an average of $ 11,180 to $ 29,380 a year per child for childcare. And childcare costs will only increase with time.
These are the costs that the working parent would have to bear if something were to happen to the stay-at-home parent. If that parent had comprehensive life insurance, the death benefit could cover childcare costs so that the family’s finances wouldn’t take a hit.
Other reasons to consider life insurance
A life insurance payout will not only provide the surviving parent with the money to cover childcare costs, but it will also help cover the ultimate expenses. The median cost of a burial funeral is $ 7,640, according to the National Funeral Directors Association. This does not include cemetery, monument or marking costs. In addition, there may be ongoing medical bills or other expenses that need to be covered.
In addition to providing a financial safety net, the stay-at-home parent may also want life insurance to leave a legacy for the children, said Stephen F. Lovell, president of Lovell Wealth Management. Because of the introduction life insurance in a trust for your children you can transfer an inheritance to them.
And while it’s no reason people buy coverage, they have life insurance in the event of divorce is valuable. It’s better to get coverage while you are young and healthy because you can qualify for a lower rate, Lovell says, regardless of your reason for purchasing coverage. If the divorce happens later, it can be difficult for either parent without a policy to find affordable coverage at the time – or even get coverage if she or he has health problems.
How Much Coverage Do Stay-at-Home Parents Need?
When figuring out how much life insurance you needincome is often an important consideration. That’s because you want a death benefit that replaces your salary for a period of time you choose.
Coming up with an amount of coverage may seem like more of a challenge if you’re a stay-at-home parent with no income. There is no one-size-fits-all approach, Hill says. But there are a few important questions to ask yourself to determine how much coverage you need.
How many children do you have? “The bigger the family, the bigger the life insurance the family should have,” says Hill. That’s because the costs for childcare will be higher. Read about the costs of childcare, after-school care or a full or part-time babysitter where you live.
You want to have life insurance policy that is large enough to cover those costs for all of your children until they are old enough to stop needing care. If your spouse needs a home cleaner, lawn mower, or others to perform the tasks you are currently performing, include those costs in your life insurance calculation.
Are you going back to work? If you plan to return to paid employment, consider what your income is likely to be. That’s because your family expenses are likely to increase as your income, Hill says.
You want enough life insurance to replace the income you expect when you return to work, so that your family can continue to live as usual. By getting enough coverage now, you can snag a lower rate than what you would pay if you waited to buy more coverage after you got back to work.
Ideally, you should work with a financial advisor who can help you review your household assets and expenses to calculate how much coverage you need. You can find a fee-only planner through the National Association of Personal Financial Advisors or an hourly planner by the Garrett Planning Network
What Type of Life Insurance Should You Buy?
There are two primary types of life insurance: term life insurance and permanent life insurance. A term life policy provides coverage for a specific period of time – usually 10, 15, 20 or 30 years. Permanent life insurance provides lifetime coverage. The type you choose will depend on your family’s financial situation and goals.
The Case for Term Life
Hill says he typically recommends staying-at-home parents to purchase term life insurance because it is an affordable way for families to get the protection they need. For example, a healthy 30- to 35-year-old woman could get a 20-year life insurance policy with a death benefit of $ 500,000 for about $ 20 to $ 30 a month, he says.
You can choose a timeframe that is long enough to span the years until all of your children have completed high school or even college. Then you know that money will be available to pay for your children’s care if something were to happen to you when they were young.
The case for a permanent life
Permanent life insurance can make sense for higher income families who have other financial planning bases covered, such as maximizing retirement savings, having an emergency fund, and saving for school education for kids.
One advantage of permanent life insurance is that it builds cash valueIt’s money you can use later in life if the policy builds up enough cash value. For example, you can tap into a retirement income policy – which can be attractive to stay-at-home parents who can’t contribute to a retirement savings plan at work.
“That cash value policy gives them planning flexibility later in life,” Lovell says.
Still, the high cost of a permanent life insurance policy that delivers significant cash value can deter a young family having to juggle other expenses.
If you are interested in permanent life insurance but can’t afford one right now, keep in mind that term life insurance is typically a lifetime conversion option that allows you to switch to permanent life insurance.
You may be able to take advantage of that option if you return to work and have a larger household budget.
Buy life insurance
It is best to work with an independent insurance broker who can get you quotes and compare policies from different insurance companies. If you’d rather take a do-it-yourself approach, look for the best policy at the best price.
You will have to provide a lot of it information about yourself during the application process so that insurers can calculate your rate.
Your lack of income shouldn’t hurt your ability to get coverage as long as your spouse has life insurance. Where you’ll run into trouble is if you’re trying to buy a policy but the income-earning spouse doesn’t have one or isn’t also applying for coverage, Hill says.
You also raise a red flag if you’re trying to get more coverage than your spouse has. Typically, insurers will issue a policy for a dependent spouse that is worth 75% to 100% of an in-force policy for the working spouse, he says.
If you’re having trouble getting coverage, it can help to have an independent insurance broker by your side. That broker may write to the insurer a letter explaining your situation and why you need life insurance, even if you are not the one earning the household income.
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