Life Insurance Is A Must For Stay At Home Parents

Many stay at home parents, whether moms or dads, operate under the false impression that they do not need life insurance as they do not have an income that others rely on. However, even though stay at home parents do not bring in monetary income, they still have a job - a very important one.

A stay at home parent is a nanny, a teacher, a chauffeur, a nurse, a counselor, and much more. If god forbid the stay at home parent were to die, do these roles all of a sudden go away? No, the children that rely on the stay at home parent to fulfill these roles still need them to be filled if a stay at home parent passes away unexpectedly.

If you are a working parent, ask yourself a few simple questions. Would you be able to stop working to fulfill the role of the stay at home parent if they pass away? Would you have enough income to hire someone else to take care of your children as you work?

The answer to these questions for many families tends to be no. This is why it is vital for stay at home parents to also have life insurance. A life insurance policy for a stay at home parent does not replace their income as they do not have one, but it can be used to cover the costs of all the jobs the stay at home parent did.  

Life insurance coverage is often synonymous with income replacement. If you are a working parent with an income of $100,000 that your family relies on, it is easy to calculate the value that you provide to the family. If you anticipate that your family would be reliant on this income for 15 years if you passed away, you would need a minimum of $1.5 million in coverage.

However, calculating the value that a stay at home parent provides is not as easy as they do not receive monetary compensation for their job. Stay at home parents are on the clock 24/7. According to a 2019 study by Salary.com, a stay at home parent is worth $178,201 annually.

In other words, if a stay at home parent received income for their work, they would earn $178,201 per year. For this reason, a stay at home parent needs life insurance not to replace their income, but to cover the costs of all the jobs they do every day.

Let's look at an example. Say you have a married couple named Mike and Amy who have a 2 year old and a 4 year old son. Mike works and earns a salary of $100,000 per year and Amy stays home to take care of their young children.  

Say that God forbid the unthinkable happens and Amy dies in a car crash. Beyond the immense grief, Mike will now be responsible to find a way to replace all of the jobs that Amy did for their children. Say that on the conservative end, Mike could hire a full time nanny to take care of his young sons for $50,000 per year.

Would Mike be able to realistically afford this from his $100,000 salary? In all likelihood, no. The other option would be for Mike to work less, but that will likely not be feasible either. However, say that Amy had bought a $750,000 term life insurance policy.

This would allow Mike to hire a nanny for 15 years assuming a $50,000 salary per year. Although Mike and his young sons will never be able to replace Amy, the wife and mother, a life insurance policy will allow Mike to continue to take care of his children as he works.  

The answer is usually that it depends, but a good starting point is a term life insurance policy. As the name implies, term life insurance covers you for a set period of time such as 10, 20 or 30 years. If you die during this time, the policy pays out. If you are alive at the end of the term, the coverage ends.

Think about it like this. Although a parent will always have the role of a parent, the goal is for your kids to grow up and be independent. You will not be a stay at home parent forever. This is why a term policy can make sense.

Term life insurance is the most affordable way to get coverage and can be used to protect your family during the times when your children rely on you the most. For example, say that you currently have a 3 year old son and a 4 year old daughter.

If we anticipate that your children will be reliant upon you until they are at least 18 years old, you should have a policy that covers you for at least 15 years. A term policy can accomplish this. You may also consider purchasing a convertible term life insurance policy.

A convertible term life insurance policy allows you to convert the term policy into a permanent type of life insurance such as a whole life policy. This can be a viable option for some stay at home parents who want the flexibility of converting their term policy into permanent coverage that will last for their entire life.

Like most questions in personal finance, the answer is that it depends. However, you can multiply the anticipated costs you will have from the loss of a stay at home parent by the number of years that your children will still be reliant on the services a stay at home parent provides.

For example, say that you have a few young children and anticipate that they will be reliant on the stay at home parent for the next 15 years. If it would cost $60,000 per year to replace the job of a stay at home parent, that stay at home parent should have at least $900,000 in coverage ($60,000 x 15 years).

Keep in mind that this is a generic answer. The exact amount of coverage you need will depend on your individual circumstances. It is a good idea to work with a competent life insurance agent who can help you find a coverage amount that is tailored to your specific needs.

In general, the sooner you can obtain life insurance the better. The reason for this is that life insurance is cheapest when you are young and healthy. The longer you wait to obtain a policy, the more money you will pay for coverage.

If you are already a stay at home parent, you need to get a policy as soon as possible. However, you may also be in the situation where you are not yet a stay at home parent, but are planning on starting a family. You can buy a life insurance policy before you have children if you anticipate that you will be a stay at home parent in the near future.

The bottom line is that stay at home parents need life insurance. Although a stay at home parent does not receive an income, they provide immense value to the family. If a stay at home parent passes away, a life insurance policy can be used to cover the costs to replace the work that the parent did.

Although you can never replace the person, you can protect your family financially. For many families, a term policy with enough coverage is a good starting point. However, we recommend working with a competent life insurance agent who can help walk you through all available options and recommend a suitable policy that meets your individual needs.