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When it comes to life insurance, it’s really important that stay-at-home spouses are not left out. I’m not talking about working spouses including their stay-at-home husband or wife on their term life beneficiary form. I’m talking about stay-at-home spouses buying life insurance for themselves.
This especially comes into play when one spouse is the breadwinner and the other spouse doesn’t have a paying job, for example because he or she stays at home with children. Many people incorrectly assume that these non-employed or lower-earning spouses don’t need life insurance.
This is incorrect, for a variety of reasons. First, many people don’t take into account the true financial value of a stay-at-home parent. The most common mistake is looking merely at the earnings that come in and not the expenses saved from not having to hire someone to complete tasks — and we all know child care, for example, can be expensive.
Consider the market rate for a first-rate nanny. At $18.66 an hour and annualized over 52 weeks and 40 hours per week, that adds up to $38,812.80 per year. When you calculate in overtime — and how many stay-at-home parents stop working at 5 p.m.? — the cost can skyrocket.
Other services would need to be replaced if a stay-at-home parent were no longer around: Transportation, cleaning and meal preparation are just a few possibilities. For these reasons, stay-at-home parents should buy life insurance.
Here are a few guidelines if you’re considering a policy.
What type of life insurance should I buy?
Most parents would be best served by a term life insurance policy. The length of term life, in which the policy lasts for a certain number of years, usually coincides with the years that children are financially dependent. These policies are simple and relatively cheap. It’s also easy to compare policies and prices among providers.
How long should the policy last?
Many parents prefer to choose a policy length that gets their youngest child through college. If you can afford it, it’s wise to consider an even longer policy that would support the children in the early stages of their careers.
How much should I buy?
For the stay-at-home spouse, it can be tough to pinpoint a life insurance amount. I suggest that stay-at-home parents purchase 50% to 80% of the working spouse’s yearly income, multiplied by the number of years until the children are financially independent. However, each situation is unique and should be discussed with your agent.
What role will lifestyle play?
Other factors to consider when buying life insurance are lifestyle and health considerations. Share all the details with your agent so he or she can help you find the best coverage. For example, if you participate in any activities that are considered dangerous by life insurance standards, such as rock climbing, an experienced life insurance agent might be able to help you analyze your history of participating in rock climbing and find an insurance company willing to sell you a policy.
Stay-at-home spouses often don’t think to apply for their own life insurance policies, but as you can see, it makes sense in the right circumstances.