Parent. Its official definition ought to be, “Caretaker of child. Synonyms: nanny, tutor, launderer, chauffer, coach, nurse, therapist, chef . . . ” And the list goes on.
This definition especially applies to a stay-at-home parent (SAHP). While SAHPs may not pull down a six-figure income from a corner office, they provide a lot of valuable services for the family.
Let’s talk about why stay-at-home parents need life insurance, how big that policy needs to be, and what families should do with the payout if the unimaginable happened.
What a Stay-at-Home Parent Covers
The whole point of life insurance is to replace your income so your family can function if something were to happen to you. That makes sense for the spouse who goes to the office every day, but what does that mean for the stay-at-home parent? Why do SAHPs even need term life insurance if they don’t technically make an income? Because of the services they provide.
Here are some of the jobs a stay-at-home parent covers:
- Childcare provider
- Laundry services
- Project manager
Running a household is a lot like trying to herd a litter of kittens! If something horrible were to happen to the SAHP, who would take care of these needs? The surviving spouse can’t quit work—they still need to bring home an income. That’s where term life insurance kicks in.
Do Stay-at-Home Parents Need Life Insurance?
A life insurance policy for a stay-at-home parent doesn’t replace their income—it provides the money necessary to cover all the jobs the SAHP did before they passed away.
We know there’s no way to ever replace a parent. Nothing will ever fill that hole. But with the money from a life insurance payout, the surviving spouse can hire someone to cover many of the responsibilities the SAHP used to cover.
It’s a matter of keeping your family going in the worst of situations. Life will never go back to normal, but by hiring people to help fill in the gaps (at least temporarily), you can make sure nobody’s needs fall through the cracks. And that’s what matters, right?
So, when should you get life insurance as a stay-at-home parent?
If you’re fresh out of college and without debt, you don’t need it quite yet. But if you’re married and kids are on the horizon, it’s good to go ahead and purchase a policy now.
Then you’ll be covered no matter how long it takes for that little one to come along. After all, they tend to arrive on their own schedule—and often earlier than you’d planned!
How Much Life Insurance Do Stay-at-Home Parents Need?
The big question is how much term life insurance you should purchase for the stay-at-home parent. There’s no one-size-fits-all answer to this because every family is different, but a 15- to 20-year policy between $250,000–400,000 is a general rule. After that time, the kids are grown and out of the house, so there’s no need for coverage.
You need to think through what you’ll do in three major areas: childcare, education and household duties. Those decisions might mean you get a bigger policy to cover the extra costs.
Childcare. If something were to happen to the SAHP, how much money would you need to cover childcare expenses? According to Care.com, childcare for an infant costs about $200 a week for a day care center and $600 a week for a nanny.1
So 50 weeks of care (you do get a vacation, right?) could run between $10,000 and $30,000. And that’s just for one child. Of course, those costs differ depending on where you live, but you get the idea.
Education. A lot of families choose to homeschool their children. If that’s the case in your family, you and your spouse need to decide where the kids will go to school if something were to happen to the SAHP.
If you want to go the private school route, then you’ll need to factor in those costs. The national average for private school tuition is about $10,700.2 Again, that’s just for one child. And that doesn’t include all the extra costs like supplies, fees and extracurriculars.
Household duties. Who will be responsible for cleaning the house if something happens to the stay-at-home parent? If you paid someone to clean and do laundry, that will cost you about $26 an hour.3 That’s an average, so if you live in California or New York, you may have to offer up the occasional arm and leg to pay for these costs.
Remember, how much life insurance you get for the SAHP will depend on your family’s needs.
Let’s think about Shauna, a mom who stays home to take care of her young children. If something happened to her, it would cost between $25,000–40,000 a year to pay for the different jobs she does on a weekly basis, like childcare, laundry and meal preparation.
Shauna and her husband would need to take out a 15- to 20-year term life policy on Shauna and make the policy worth between $250,000–400,000. That’s 10 times the amount of work she does in a year.
If tragedy struck and Shauna passed away, her husband could work with a financial advisor to put the life insurance benefit in a good mutual fund.
Each year, he could use the growth from that mutual fund (which could be around 10% a year) to pay for the costs of childcare, meal preparation, house cleaning and the other jobs his wife used to handle. So that life insurance policy of $250,000–400,000 could give Shauna’s family between $25,000–40,000 a year to take care of the services she provided.
Stay-at-home parents often devalue the financial role they play in their family. Don’t make that mistake, especially when it comes to life insurance! Nobody could ever take the place of the stay-at-home parent, but replacing their income is important. Make sure your family’s needs are met by getting the right life insurance coverage for both parents.
If you have questions about life insurance, please contact Everett & Sons Insurance Agency at (781) 893-0885 or online at www.everettandsons.com.