Life insurance is an essential part of financial planning. It’s a great idea to have a policy in place, especially if you have children or other dependents that depend on you financially.
A significant reason for this is that life insurance can replace your income in the event of your death. Therefore, it often provides substantial peace of mind knowing that your family would be financially secure even if something unexpected occurred.
Of course, not all parents have an income. It’s common to assume that stay-at-home parents don’t need life insurance. Many couples only purchase life insurance for the partner earning an income.
However, most financial advisors would agree that this is a mistake. Stay-at-home parents contribute to their family in a way that, if they were to pass away suddenly, could create a massive financial burden to their surviving spouse. Purchasing life insurance for a stay-at-home parent can protect against those financial burdens.
How much coverage do stay-at-home parents need? What should families with a stay-at-home parent consider when buying coverage? Read on for the answers to these questions and everything else you need to know about life insurance for stay-at-home parents.
Financial Contributions Stay-At-Home Parents Provide
Families without a stay-at-home parent often need to find childcare. The cost of childcare depends on the type of childcare you choose and the area you live in.
For instance, a relative might be willing to provide childcare for free or low-cost, while daycare centers can charge hundreds or even thousands of dollars a month.
You can check out the average annual cost of common options in the chart below. Again, the cost might be higher or lower in your local area.
| Type of childcare: | Average yearly cost for full-time care of an infant: |
|---|---|
| Home-base daycare | $7,431 |
| Daycare centers | $9,991 |
| Au Pair | $18,000 |
| Babysitter | $30,493 |
| Nanny | $38,813 |
The cost of childcare is important because these costs would need to be covered by the working parent if the stay-at-home parent passed away. Depending on the number of children you have and the type of childcare you choose, that cost of childcare could easily be equivalent to a salary. A life insurance policy for a stay-at-home parent can cover the cost of childcare, and it’s a good move for most families.
Plus, while childcare can be thought of as the largest financial contribution by stay-at-home parents, it’s often not the only one. Many stay-at-home parents also handle household tasks such as:
- Cooking
- Housekeeping
- Organization
- Grocery shopping and other errands
- Budgeting
The working spouse wouldn’t necessarily have to pay someone to take on all of those tasks if the stay-at-home spouse were to die unexpectedly, but they are all things that would still need to be done.
It’s worth keeping in mind that these behind-the-scenes tasks can become very overwhelming. For example, a newly single parent who is grieving the loss of a partner might benefit from being able to pay for a housekeeper or laundry service. A life insurance policy can help cover these costs.
Life Insurance for Stay-At-Home Parents Who Are Planning to Go Back to Work
Having a stay-at-home parent may be the long-term plan for some families. However, in other families and household situations, the stay-at-home parent might only be planning to stay at home long enough until their child or children reach a certain age.
For instance, some families have stay-at-home parents until their children reach kindergarten or first grade. Other families might want to have a stay-at-home parent until their children are in later elementary school or middle school.
No matter what age you’d like your children to be before the stay-at-home parent returns to work, it will require some additional consideration when planning for life insurance coverage. It’s a good idea to account for the future income of the stay-at-home spouse in the policy benefit amount if you’re able.
For instance, let’s say a couple is buying a 20-year-policy and are planning on having a stay-at-home parent for the first ten years of the policy. Then, during the last ten years of the policy, they’re envisioning the stay-at-home parent returning to work.
Using example numbers, they could factor $30,000 a year to cover the cost of childcare for the first ten years of the policy and $45,000 a year for the remaining ten to account for salary once the stay-at-home parent returns to work.
The $45,000 annual income added to the overall amount of the life insurance policy would factor in a replacement of income that would be left to a surviving spouse.
So the life insurance breakdown would go as followed:$30,000 x 10 and $45,000 x 10. So that would provide a life insurance death benefit of $750,000 for 20 years.
It can be hard to plan for the stay-at-home parent’s future income. You can get a rough idea by considering:
- How many years it will be before the stay-at-home parent returns to work
- If returning to work will be full or part-time
- If the stay-at-home parent will be able to return to their previous career or field
- If the stay-at-home parent wants to return to their previous career or field
- If the stay-at-home parent will need any additional education
- If the stay at home parent will need licensure or certification renewals
You won’t be able to predict a future salary perfectly, but it’s a good idea to come up with an estimate. Accounting for this potential additional income can help ensure your policy provides financial security that continues to work for your family.
Benefits to Buying a Life Insurance for Policy for a Stay-At-Home Parent
There are reasons beyond a stay-at-home parent’s household contributions that make purchasing a life insurance policy on them a smart financial move.
Another important reason is to ensure that there isn’t the financial burden of paying for the cost of a funeral and end-of-life medical expenses.
Those might not sound like large enough expenses to warrant life insurance coverage by itself, but keep in mind that the average funeral costs close to $10,000.
In fact, based on an annual life insurance study conducted by LIMRA, the number one reason why people buy life insurance coverage is to make sure that their loved ones have the funds to pay for burial and final expenses.
Plus, the average funeral cost of $10,000 doesn’t include additional costs such as flowers, obituaries, vaults, and other items many people consider very important. Without life insurance in place, families often dip into savings or take out loans to pay for funerals.
A $10,000 burial insurance policy can cost as low as $20 per month.
End-of-life medical expenses are a lot harder to predict. An unexpected death could be instant and not require much medical care. But, on the other hand, it’s also possible that just a few weeks in the intensive care unit could add up to thousands in medical bills.
Of course, these costs depend on your health insurance. However, your health insurance plan and life insurance coverage could change in the time between when you buy your life insurance policy and the time you need end-of-life care.
No one likes to dwell on any of these possibilities, but life insurance coverage is designed to help you prepare for them. Of course, a policy can’t help you predict the future, but it can help protect your family from financial hardship.
That’s why it’s a smart idea to factor in coverage for end-of-life care when you’re buying a life insurance policy.
Life Insurance Policies and Divorce
A quick note about life insurance and divorce: Life insurance can help protect you and your family from the unexpected, including divorce or breakup between partners. This can be especially important for stay-at-home parents.
It’s always easier and less expensive to get life insurance when you’re young and healthy. A stay-at-home parent who didn’t have a policy in place and got divorced from an income-earning spouse would likely have to pay more for coverage than if they’d gotten a policy while they were younger and married.
That can add a financial burden and cause difficulties during a process that is already very stressful.
How Much Life Insurance Coverage Does a Stay-At-Home Parent Need?
Most life insurance calculators used to help determine how much life insurance coverage a person should have will often start with the individual’s annual income. While stay-at-home parents contribute to their family in another valuable way, it can be challenging to determine a coverage amount without an actual income.
Instead, stay-at-home parents trying to figure out how much life insurance they should have can start by estimating the annual cost of childcare in their area. This method is generally considered one of the best starting points in determining how much life insurance a stay-at-home parent might need.
From that point forward, you can then add in any extra services that your surviving loved would need help paying for, household expenses such as cooking or housekeeping, transportation, education expense, and even future income should the stay-at-home parent plan on returning to work.
Much of the life insurance needs for a stay-at-home parent often revolve around the costs of raising children. Based on a study conducted by the United States Department of Agriculture, just in 2022 alone, it is estimated that for a medium-income family (both earning an income) to raise a child from newborn to age 18 would cost $272,049.
Let’s look at an example of a couple with two children. They decide that they would need to put their children into a local daycare if the stay-at-home parent was to pass away and determine the average price of a year of daycare is 10,500 per child in their city.
They also decide that a weekly housekeeper would be needed for their family and find that the average cost of housekeeping in their area is $125 a week or $6,500 a year. They also want to have $7,000 toward a funeral and put aside $10,000 for medical expenses.
Their coverage calculations would start with:
- Daycare for two – $21,000
- Housekeeping – $6,500
That’s an income of $27,500 for the stay-at-home parent. Many financial planners agree it’s a good idea to start with a coverage amount at least 10 times your annual income. So to get their final coverage amount, the couple would combine:
- 10 years of the stay-at-home parent’s contributions – $275,000
- Funeral coverage – $7,000
- Medical expenses – $10,000
That’s $292,000 in coverage. In this case, a $300,000 policy might be a good coverage fit for the stay-at-home parent. Again, however, these numbers are only estimates.
When determining the best life insurance coverage amount, check out our guide to coverage amounts to learn how to calculate the right amount of life insurance needed to provide financial protection for you and your family.
Life Insurance Amount Based On Working Spouses Income
Whenever an application for life insurance is submitted, the life insurance provider and its underwriters will check to see if the amount of coverage being requested meets financial justification based on a multiple of the insureds annual income.
Multiples are often broken down into age groups, with younger ages having the highest multiples. This is because that tends to be the age group with the most increased need for financial protection, allowing younger groups to obtain larger amounts of life insurance protection.
For example, with one of our providers, the age group of 40 and younger can receive up to a maximum of 25x their annual income in death benefit coverage meeting financial justification guidelines.
When it comes to non-working spouses, most life insurance providers will allow non-working spouses to apply for a life insurance amount based on the family’s total household income.
That means that a non-working spouse, in many cases, can apply for the same amount of life insurance coverage as their working spouse without any financial justification concerns.
Best Type of Life Insurance for a Stay-At-Home Parent
Stay-at-home parents need life insurance coverage, but what kind of coverage is best?
The answer depends on your family, finances, goals, and specific circumstances. For most families, a term life insurance policy that lasts while their children are young is ideal for stay-at-home parents. However, other families might want to purchase a whole or universal life insurance policy to ensure coverage never expires.
There’s no one correct answer. In general, families should consider term policies if:
- They want large coverage amounts for lower monthly premiums
- They want coverage for a set amount of time (10, 15, 20, or 30 years)
- They’re not interested in savings or investments component along with life insurance
Families should consider whole or universal life if:
- They want permanent coverage
- They don’t mind higher premiums
- They want a savings account or cash value with their policy
- They want to be able to borrow against the value of their policy
As mentioned, for young families, a term policy that lasts until their children are out of high school or until they have graduated college is often the best plan.
It’s a great way to make sure your children will be financially secure until they can be independent. Term life insurance policies are inexpensive and allow families to buy large amounts of coverage at a much more affordable cost when compared to permanent life insurance options. In addition, they can provide security without compromising the family budget.
However, families seeking a permanent option might be better served by whole life or universal life policies. The additional benefit of cash value and interest accumulation makes these policies an appealing choice for families who have the budget for the higher premiums.
Plus, while whole life and universal life plans are significantly more expensive than term insurance, all life insurance is more affordable when you are young and healthy.
Young couples without any health concerns might be able to buy policies at rates that work for them, especially if they choose a less expensive permanent policy such as guaranteed universal life.
Applying for Life Insurance as a Stay-at-Home Parent
You should be able to secure a life insurance policy reasonably quickly as a stay-at-home parent if you’re young and in good health. However, there are few things that are unique to buying coverage as a stay-at-home parent. So before you apply, keep in mind that:
- Your income-earning spouse needs to have coverage already or be applying for coverage at the same time as you. It won’t hurt your application not to have your own income, but you will need to show that your income-earning spouse has or is acquiring coverage and that one family member is at least earning an income.
- You can’t apply for a higher coverage amount than your income-earning spouse. However, you’ll almost always be able to get at least 100 percent of your income-earning spouse’s policy benefit amount, and many companies will allow you to apply for the same amount of coverage as your income-earning spouse.
Both of these measures are in place to prevent insurance fraud. They help insurance companies make sure the purpose of the life insurance policy is to replace income, cover the cost of child care, pay for a funeral, or help provide security for other vital financial needs. As long as these conditions are met, the policy amount can be any amount.
The application process will be the same as any other life insurance application process. You’ll fill out an application and answer questions about your finances, family, health, and more. You’ll then take a medical exam so that the insurance company can determine your life insurance rate classification. You’ll have the option to cancel your application at any time before the policy is finalized.
Final Thought On Life Insurance for Stay-at-Home Parents
When considering life insurance, it’s always best to shop around before you apply for any life insurance policy. The shopping process should include getting quotes from several companies to see all your coverage options. You might be surprised how much coverage you’re able to get and how low your rates are.
An independent agent or broker can help you get quotes and find the best policies for your family and situation. They can also answer your questions if you’re unsure how to plan your coverage as a stay-at-home parent.
As a stay-at-home parent, one part of the life insurance application process that can be incredibly stressful is if your life insurance coverage requires a medical exam.
If you’re busy taking care of kids all day, you might not have the time and energy for a life insurance medical exam. Fortunately, you can get great coverage without an exam.
No exam life insurance policies allow you to get life insurance coverage without a medical exam. At No Medical Exam Quotes, we work with top no exam life insurance companies. So if you’re ready to start looking for coverage, you can fill out our quick form to get no-obligation quotes today.
Is there something we missed in this article?
Please let us know if we missed answering a specific question about life insurance for a stay-at-home parent. Not only will we get you an answer to your question, but if it also helps others, we will be sure to add it into an FAQ section to this article.
