A great deal of emphasis is often placed upon the importance of life insurance cover for the main wage earner in the family; it would be almost impossible to survive without the main breadwinner’s income. However, stay-at-home parents also contribute financially to the family in different ways, and this economic contribution should not be overlooked. That’s why it is important that stay-at-home parents take out an appropriate life insurance policy.
The spouse who stays at home carries out a number of important tasks including maintaining the home, looking after children, grocery shopping, doing the laundry, and preparing meals, which are all services that would prove to be very costly if carried out by a third party. Full-time nursery care in particular is extremely expensive, as are the services of a childminder.
Research carried out recently by Salary.com showed that the average stay-at-home spouse works more than 96 hours per week in a number of different roles including teacher, cook, housekeeper, driver and psychologist. This equates to an annual salary of a staggering $115,431 per year!
When determining how much life insurance is necessary to cover the stay-at-home parent it is important to recognize that no two families are the same, and that their needs and requirements differ greatly. In general, the most suitable amount of insurance is considered to be a person’s annual salary times the number of years in which the youngest child will have completed full-time education. When applying this calculation to the role of the stay-at-home parent the financial value of the services they provide should be used, plus other costs such as funeral expenses, and solicitor’s fees. It may be advisable to consult an experienced insurance broker to determine exactly how much cover you may need.
There are two types of life insurance currently available on the market for stay-at-home parents. The first is permanent life insurance which provides cover for the length of your life as long as you keep up to date with your payments. This type of policy also accumulates cash value tax-deferred, which can be borrowed against if necessary, for example, to buy a property, or for funding higher education. Bear in mind though that any unpaid loans do accrue interest and will ultimately reduce the cash value of the policy and the death benefit payable.
The second type of life insurance policy is term insurance which provides cover for a set period. This type of insurance is less expensive than permanent insurance and is ideal if you want to cover a large debt such as a mortgage, or if cover is no longer required after a specific amount of time; perhaps when your children have grown up and left higher education. You can take out term insurance for periods ranging from five to ten years, and many policies can be renewed. However, if you intend to renew your policy for a number of years then term insurance could prove to be quite costly in the longer term.
Of course, not all stay-at-home parents have a partner. Single parents have an even greater need for life insurance as they are solely responsible for the upkeep of the home and the welfare of their children. Should a single parent become critically ill or die the effects on the children could prove disastrous.
To summarise, stay-at-home parents need to consider the financial implications of their death upon their dependents, and to put measures in place to safeguard their family should the worst happen. Their contribution in the home can be equal to many thousands of dollars over the course of a year. The loss of a parent would be devastating for any family, and having a sound life insurance policy in place at least ensures that financial hardship does not add to the burden. Without the stay-at-home parent someone else would have to do all the tasks around the home including housework, childcare, and running errands. This would mean that the surviving partner would either have to give up their job to carry out these tasks, or to pay for someone else to do them; which could be incredibly costly.
When deciding how much cover you require it is important to take into account the fact that childcare and education costs have risen consistently year upon year, so when arranging cover allow for these increases in your calculations. In general, the younger your children are, the more life insurance you will need as the payout will need to cover the costs of their upkeep and education for many years to come.
The stay-at-home parent should realise that, although they do not contribute to the family finances by going out to work, they do actually contribute financially in a number of different ways, and that their loss would infact have serious financial implications for the remaining partner. Life insurance, whether permanent or term insurance depending on your situation, can go a long way towards giving peace of mind that your family would be financially comfortable if you were no longer there to provide for them.