There's a good chance that you've heard of life insurance. And there's an even better chance that if you have heard of it, you've decided it's only important for people who work outside the home. That's simply not the case! Let's dig into what exactly life insurance is and why life insurance for stay-at-home parents is so critical.
What is Life Insurance?
Life insurance functions a lot like other insurance. But it's also not something that people like to think about. While the idea of medical emergencies and car accidents is unpleasant, the thought of dying is much worse. That's one reason why so many people put off learning about life insurance.
Instead of thinking about life insurance as something really grim, consider it one of the greatest financial acts of love you can take for your family. It's an essential part of your financial plan, just like budgeting and investing!
There are a few key terms you need to know when it comes to life insurance.
- Policyholder – The person who purchases the life insurance policy.
- Beneficiary – The person (or people) who will receive the insurance payout.
- Premium – The money paid, usually monthly, in exchange for the life insurance coverage.
When you set up your life insurance policy, you name beneficiaries, such as your spouse. Then, in the event of your death, the life insurance policy pays your beneficiary a sum of money. The money comes from the insurance premiums you pay during your lifetime–or the life of the policy.
Overall, the idea is that life insurance will guard against the financial loss that your family would experience in the event of your death.
Why Stay-at-Home Parents Need Life Insurance
We often throw out words like “breadwinner” and “income” when we talk about life insurance. That's probably why so many people assume they only need life insurance if they work outside the home. The fact is that there are many reasons why you need life insurance even as a stay-at-home parent.
Let's explore some of the biggest reasons why life insurance for stay-at-home parents is essential.
The “Value” of a Stay-at-Home Parent
There are countless reasons why stay-at-home parents need life insurance. Perhaps the most important reason is that the work of stay-at-home parents is invaluable.
People often mistakenly believe that you only need life insurance if you collect a paycheck. As a result, many stay-at-home parents don't bother getting life insurance. The problem is that while staying at home doesn't come with a paycheck, it is a tremendous amount of work!
In fact, stay-at-home parent salaries would have to average about $184,000 to account for all the unpaid work that happens. That's everything from cooking and cleaning to calendaring and carting around kids. Being a stay-at-home parent is not for the faint of heart!
Even though stay-at-home moms and dads aren't pulling in a paycheck every other week, they are doing real work. A tremendous amount, in fact. As a result, they need life insurance!
You Might Not Always Stay Home
Another reason why you need life insurance as a stay-at-home parent is that you might not always be a stay-at-home parent.
In a recent survey, stay-at-home parents generated a list of reasons why they chose to return to work. Some reasons include:
- Wanting to support their family financially
- Enjoying their profession
- Having older kids who are less dependent on them
- Considering entrepreneurship
- Looking into starting a new career
- Having a spouse who changes or loses a job
There are so many unknowns when it comes to the future. Maybe your stay-at-home side hustle really takes off. Perhaps you feel called back to your previous job. One thing you do know for certain is that life insurance costs more money the older you get. So even if you don't know how long you'll be a stay-at-home parent, you do know that it will never be cheaper to buy insurance than it is right now!
Having the Resources to Grieve and Recover
Life insurance isn't just a financial stopgap until you can figure out who will do the work that the spouse did. It's also mental and emotional peace of mind. Without life insurance, many people would not be able to grieve and recover.
Juan is a small business owner who can't say enough about the power of life insurance. After the tragic loss of his young wife, he was able to leave his job. This departure from work gave him the ability to grieve and recover. He also had another key job to do–help his daughter heal as well. Eventually, he was also able to shift his focus to his family and his small business and see that flourish, even during a difficult time.
Being able to properly support your child or children during a period of loss is critical. In fact, psychologists report that the loss of a parent is one of the most traumatic experiences a child can face. Potential effects include:
- Anxiety
- Depression
- Higher likelihood of substance abuse
- Increased potential to develop an eating disorder
- Greater chance of suicide
Growing up is complicated enough. While life insurance will never bring back your child's other parent, it can ensure that you are able to help your child adjust to the new reality.
Without life insurance, you would likely have to throw yourself into work more than ever to make up for your family's loss. More time away from home means less support and a decreased likelihood of spotting any struggles until it is too late.
The Ability to Continue Growing Generational Wealth
Obviously, losing a partner and parent is one of the most devastating losses anyone can endure. Life insurance can give you the breathing room to grieve and recover in the short term. It can also help your family continue to build generational wealth in the long run.
Your stay-at-home spouse undoubtedly plays critical roles within your family, and those roles will have to be filled. Either by the surviving spouse taking on those roles or outsourcing them in other ways.
Some expenses that may arise include:
- Housekeeping
- Gardening and landscaping
- Child care and schooling
- Extracurricular coordinating
- Budgeting and financial planning
Even if these tasks can be accomplished without having to pay for them, they will undoubtedly take up a ton of free time and can reshape your family's trajectory. If you've been working on lifestyle design as a family, being inundated with new tasks can really crimp your plans and the time freedom you are currently enjoying.
With life insurance in place, you can afford to take the time to strategize thoughtfully, outsourcing when you're able to adopt other tasks as needed. Thanks to the cushion that life insurance provides, you can make these choices purposefully instead of rushing and dramatically undoing the progress you made as a couple.
Term Life Insurance vs. Whole Life for a Stay-at-Home Parent
There are several different types of life insurance. Understanding what term and whole life insurance are can help you determine which is the right choice for you.
What is term life insurance?
Term life insurance is a type of life insurance that lasts for a term, or a period of time. Typically, the terms are between 10 and 30 years. You determine the amount of time and how much coverage you want. Then, if you die within that period of time, your family (or other designated beneficiary) receives the amount of money indicated by the coverage you carry.
Let's look at a scenario to make sense of this. You are currently 28 years old with two young children. Since they will be adults in about 15 years, you decide to take out a policy for 20 years. You work with a life insurance company to pick a plan that offers $500,000 in the event of your death. To keep this plan in place, you also agree to pay $50 per month for the 20-year timeframe.
Does every plan come with a $50 premium? Absolutely not! Premiums–and coverage in general–can be impacted by a variety of factors.
Some factors include:
- Health history
- Family history
- Medical examination results
- Lifestyle and habits
- Occupation
- Age
- Gender
- Term length
Working with a company like Ethos can help you get a free, personalized quote to better understand your needs and your options.
It is also worth noting that term life insurance does not come with a cash value. That means that if you don't die within that term, there is no money for your family to collect. In this sense, it's very similar to car insurance or homeowner's insurance. You are paying for coverage that you really hope you will never need to use!
What is whole life insurance?
Whole life insurance is a different type of insurance product. Unlike term life insurance, whole life insurance is permanent. Said another way, permanent life insurance is kept for your whole life, not just a decade or two. That means that if you keep up with the premium payments, there is a cash value at the end of your life.
There are different types of whole life insurance products, and many of them cost a lot more than term life insurance. While there are definitely people who benefit from these insurance products, it's really worthwhile to do your research. If you aren't sure where to start, we can help!
How Much Life Insurance Do I Need?
So now you're convinced that stay-at-home parents need life insurance. But you might be wondering how much? Ethos makes it easy to calculate how much life insurance you actually need!
There are also a couple of different rules of thumb to keep in mind.
To get a ballpark estimate of how much coverage you need, it is often suggested to multiply your income by 10. If you earn $50,000 a year, then you are looking at a minimum of $500,000 in coverage.
Ethos also says to consider DIME factors: debt, income, mortgage, and education. Within these factors, you want to consider how much debt you currently have and what your final expenses will be (celebrations of life, burial, etc.). You also want to consider how much income you want covered and for how long. Plus, you should also consider if your mortgage is paid off or not and how much you plan to spend college for your kids.
By looking at these factors, you can see how much you should adjust the initial estimate. Someone with five kids who intends to put them all through college is likely going to need a different amount of life insurance than someone who only has one child and only wants to cover some college expenses.
To make sure that you have enough coverage, it is important to look closely at your specific situation and your future goals for your family. Start with the rules of thumb and adjust accordingly.
How Much Life Insurance Does a Stay-at-Home Parent Need?
So what happens when these rules of thumb are centered around income? Does that mean stay-at-home parents don't need insurance? Of course not. We already know that life insurance is critical for parents. In that case, you may be wondering how much life insurance you need as a stay-at-home parent without any official income.
To get started, you could use the $182,000 estimate of what it should pay to be a stay-at-home parent. But it probably is more realistic to focus on other factors. The biggest consideration likely centers around childcare. After all, this is one of the most heartfelt losses in families where the stay-at-home parent passes away.
Care.com found that the majority of families plan to spend $18,000 or more on childcare each year. That jaw-dropping number is per child. So that means that if you have multiple young children that your stay-at-home spouse is caring for, you can estimate close to $40,000 or more per year.
If we go back to that rule of thumb, you probably wouldn't want less than $400,000 in coverage, or $40,000 multiplied by 10. While you won't have daycare costs for 10 years for each child, you will have dozens of other expenses that also crop up. You don't need a crystal ball to know that kids can be really expensive!
Another consideration to make is how long you want coverage. Most parents opt to have life insurance while their kids are dependent on them. As a result, you are likely going to want to choose a term that lasts 15-20 years. That way, your children will be covered until they reach adulthood.
Using these estimates, many families take out a policy of $250,000 to $500,000 for the stay-at-home parent.
Why Life Insurance is So Critical for Women
When it comes to stay-at-home parents, both moms and dads are filling this critical role. In fact, there has been a considerable uptick in the number of fathers choosing to stay home with their kids in recent years.
However, for a myriad of factors, women are still both uninsured and underinsured compared to their male counterparts. More specifically, only 56% of women have some type of life insurance coverage. That's compared to 62% of men who have insurance.
Compounding the issue is the fact that many of the women who do have coverage don't have enough coverage. The same research shows that while men have an average of $206,000 in coverage, women only carry an average of $160,000. Truthfully, neither of these figures is likely adequate, but women are still more underinsured than men.
Now, more companies are reaching out to women to help them get the coverage that they need. By understanding the various roles that women can play–single mothers, stay-at-home parents, family caregivers, breadwinners, and more–these companies can offer more meaningful coverage.
Final Thoughts on Why Stay-at-Home Parents Need Life Insurance
Whether you plan to stay at home only a short while longer or indefinitely, you need life insurance! The same is true for whether you are a stay-at-home mom or dad. All parents can benefit from life insurance.
It offers an important resource for your family should something happen to you. With a life insurance policy in place, your family will have time to grieve and also time to cover all of your responsibilities. Stay-at-home parents wear many hats and fill a seemingly infinite number of jobs. Life insurance can't replace you, but it can make things a little easier for your family as they adjust.
Learn more about the coverage you need and your family deserves with a few simple clicks through the Ethos website. It's peace of mind and so much more.
Do you have life insurance? Did it surprise you to know that life insurance for stay-at-home parents is so important?
Please let us know in the comments below.
