I remember reading a post by a friend of mine on Facebook a few years back. She shared that a childhood friend of hers had lost her husband due to bird flu (remember that horrible illness?). Sadly, they had no life insurance. They thought that since they were young, they did not need it.
That made my husband and I stop and think. What would happen if one of us died? Sure, we had insurance on him, but did we really need it on me?
You may have life insurance on your household’s primary breadwinner, but what happens if tragedy strikes a stay-at-home parent? Their contributions are valuable, and putting a dollar figure on them, though tricky, is crucial in long-term financial planning.
A stay-at-home parent cares for the children and often does a majority of housework. If that parent were to die unexpectedly, these tasks would fall to someone else. If you have an in-law or grandparent willing to do it, great. But more than likely, you’d have to outsource at least some of these tasks.
Life insurance is unnecessary for a stay-at-home parent if their death would not cause a financial hardship. But after you take an honest look at these household contributions, you’ll likely want to compare life insurance quotes.
What the policy needs to cover
Determining how much life insurance is appropriate for stay-at-home parents begins by putting a dollar figure on everything they do:
Child care: The cost of infant care in a center can reach more than 12% of median income in some states, according to Child Care Aware, an advocacy organization. You can use its interactive map to estimate the cost in your area. Better yet, call local child care centers to get exact figures. The higher your budget, the more options you’ll have when choosing child care. In-home nannies are pricier, but may help your child ease into day-to-day life after the loss of a parent.
Meal preparation: If your child is cared for in a center, this usually will be taken care of, and if you choose an in-home nanny, your meal costs shouldn’t change. However, if the working parent is accustomed to coming home to a hot meal each night, you may want to factor in a few additional meals out per month or even a meal delivery service in the months after the loss of a partner.
Housecleaning: In many households, housekeeping is a team effort. But there’s a good chance the stay-at-home parent is doing more than their fair share. Rates vary, but you can generally expect to spend $25 to $35 per hour for housecleaning, according to rates submitted to HomeAdvisor.com by homeowners across the U.S. Depending on the size of your home, that could be a few hundred dollars a week.
In addition to quantifying a stay-at-home parent’s contributions around the house, don’t forget to take into account other uses for life insurance funds when choosing a policy amount. Life insurance benefits commonly go toward funeral costs and outstanding debts such as mortgages or personal loans.
Buy early and revisit coverage as things change
The earlier you buy life insurance, the cheaper it is, so don’t wait to take out a policy.
A term life insurance policy covers the insured for a specific amount of time. If one parent anticipates staying home with the kids until they’re in high school, choose a policy that will last at least that long. Make it longer if the policy needs to cover expenses that will continue beyond that time.
A stay-at-home parent’s life insurance policy will generally be smaller than the primary breadwinner’s, and that’s OK. If that parent re-enters the workforce, revisit how much life insurance they have. If they need more with their new income, a group policy through work may be appropriate.
Elizabeth Renter is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @ElizabethRenter.