You may not be getting paid to run the kids to school, do the laundry or fix the kitchen sink, but the day-to-day support you provide for your family can feel like a full-time job. And hiring someone to handle these tasks in the event of your death can be expensive, which is why life insurance can come in handy.
When calculating how much life insurance you need, you may not think to include these everyday tasks. The breadwinner’s salary is often front and center when estimating a family’s coverage because it’s important to replace that income if the primary earner dies. But if you undervalue the supporting services you provide, your loved ones may be left with unexpected costs.
The impact of unpaid support
Families often overlook life insurance coverage for a stay-at-home spouse, says Mary Beth Storjohann, certified financial planner and founder of Workable Wealth.
Yet the value of services that a stay-at-home parent provides often far exceeds the breadwinner’s income, according to Jessica Lepore, founder of Surevested, a life insurance agency powered by artificial intelligence. These tasks might include child care, cleaning, bookkeeping, home improvements, budgeting and maintenance.
"So much is going to need to be done to compensate for that missing person — even if they're not somebody who has a traditional job," Lepore says.
Knowing how to accurately value your contribution, whether you’re a stay-at-home parent or have a part-time job, can help you create a robust life insurance plan for your family.
How to accurately value the financial impact
The first step in valuing your coverage needs is to ask your partner what their life would look like if you were no longer around, Storjohann says. How would your partner manage day-to-day tasks? Would they need to cut back at work? Would funds have to be diverted from savings? Answers to questions like these can help you determine how your absence would affect your family financially.
When you know which services your family would need to replace, you can calculate the budget to cover each one.
"What would it cost to bring in outside help for those things if you were no longer able to be in your role?" Storjohann asks. These costs can vary dramatically by location. For example, center-based child care can cost twice as much in California as in Alabama, according to 2020 data collected by Child Care Aware of America, a research and advocacy group.
Don’t forget debts you may owe. Mortgages are a huge trigger for life insurance, Lepore says. If you’re a co-signer or co-borrower on a mortgage and help with the payments, the other signatory would be responsible for the entire debt if you died. By having enough life insurance, you can help the other person make the mortgage payments without you. If you’re the sole owner of the property, the death benefit can help your life insurance beneficiaries pay off the mortgage and keep the house.
After you’ve calculated the financial impact your absence would have on your loved ones, think about how long the expenses will last. Child care may be unnecessary after a few years, while other costs may stretch longer.
It’s a good idea to take a look at your financial impact after big life events, such as getting married, having kids or filing for divorce. For example, if your kids are older and no longer require child care, you may want to adjust your coverage.
Help is available if you need it
Calculating your financial impact on others isn’t easy, especially if you don’t know how life insurance works or get intimidated by financial topics. The good news is that people are talking about money more, and there are places online to learn, Storjohann says.
Life insurance policies can last the rest of your life, so it’s good to feel confident when making decisions about coverage. If you’re unsure, talk to a fee-only financial advisor or insurance agent about policy options.
"It's really important to understand the value of a person's life is not simply their salary," Lepore says. "What they bring to the table is so much more than that."