When you think about the family provider, most people’s minds go to the parent that brings home the bacon. It’s obvious that this person needs to have life insurance. Term insurance is affordable and structured to provide income replacement if the loss of a provider happens unexpectedly. Without this provider, the family would struggle financially. An income is how one pays for a home, car, bills, children’s school activities, food, and clothing. So, if a family has one parent working outside the home and one stay-at-home parent, they only need to have the breadwinning parent covered, right? Wrong.
Imagine all the daily duties a stay-at-home parent takes care of. If they were not working inside the home, you would need to pay someone for the following services or figure out a way to find time to do them yourself:
- Transport children to school and other places
- Cook meals
- Clean the house
- Grocery shop
- Do laundry
These are just a handful of the services an average stay-at-home parent provides each week. You could even add teacher, psychologist, and accountant to their job title. Salary.com estimates the average stay-at-home mom is worth an annual salary of $118,905. That’s a lot of money to make up for if a stay-at-home parent were no longer around. Not only do income providers need life insurance, but stay-at-home parents need it as well.
How Much Coverage?
It makes the most sense for a stay-at-home parent to have enough term life insurance coverage to last until all the children are at least 18. If you plan on paying for your children’s college education, the coverage should be a longer term.
Calculating the amount of term life insurance on a stay-at-home parent can be a little tricky with life insurance carriers sometimes. Carriers have rules on how much life insurance coverage an individual can own. Life insurance isn’t designed to increase wealth. It’s not an investment tool; it’s mainly to replace income. For example, if you make $30,000 per year, the life insurance company is going to question your application if you apply for a $10 million dollar insurance policy. The life insurance companies do not want insured clients to essentially be worth more dead than alive.
As a general rule of thumb, many insurance professionals advise you to have 10 to 20 times your current income to maintain your loved ones’ standard of living. Because stay-at-home parents do not generate income, on paper it’s difficult to determine how much coverage they can be approved for.
Most life insurance carriers would allow a stay-at-home parent to have coverage equal to that of the breadwinning spouse. If the breadwinner makes a substantial amount of money and has a substantial amount of life insurance coverage, carriers may cut the coverage for the stay-at-home parent in half.
Example: One carrier may follow the guidelines that state if the income-earning spouse has $3 million or less of life insurance coverage, they will approve the stay-at-home parent for the same amount. If applying for more than $3 million, the financial underwriters will consider approval on a case-by-case basis.
Sometimes in order for a stay-at-home parent to be approved for the coverage they applied for, information must be sent to the insurance company to explain why the client is hoping for that coverage amount. This is one example of why working with an agency that has years of experience is beneficial. They know what the insurance company requires. It’s also important that the agency have access to more than one life insurance carrier. While one company may deny a specific amount the stay-at-home parent applies for, another carrier may not have any issues with it.
Stay-at-home parents are the unsung heroes of the household and need life insurance coverage just as much as the breadwinner. Quotacy works with many of the best life insurance carriers, and we will work closely with you to get all the facts so you get the best coverage possible for your individual situation. Whether you work in or outside the home, if you have anyone who depends on you, life insurance should be in your financial plan.