Life insurance is essential for working parents because it replaces their income in the event of death, allowing their family to survive. Stay-at-home parents may not be paid, but they provide a significant and valuable financial contribution to their families. So why stay-at-home do parents need life insurance?
Generally, a stay-at-home parent needs life insurance so that, during their death, the surviving spouse can safeguard their earning potential and pay for necessary services to maintain the household. This covers expenses like housekeeping, tutoring, child care, elder care, and preparing meals for busy weeknights.
What Stay-At-Home Parents Life Insurance Covers
Your life insurance policy can help cover household responsibilities, regardless of whether you have whole or term life insurance. If the death benefit claim is accepted by your insurer, the named beneficiaries of the policy will get payment. To obtain the benefit, though, you might have a few choices, such as these:
One-time payment
Most beneficiaries choose to get their entire payout in one lump sum at once. The option could help the surviving parent pay off high-balance debts, like a mortgage, depending on the death benefit amount. If not carefully considered and used to cover recurring expenses like child care, it may be hazardous.
Main payments
The survivor parent may choose payments over a predetermined period instead of a single lump sum payment. For example, $25,000 annually ($2,083 per month) for 20 years on a $500,000 death benefit payout would be sufficient monthly payments. Money might not run out too soon thanks to this structured payment. Your insurer will hold the money in an interest-bearing account, and you will be taxed on the deposited interest.
Retained asset account
Depositing the money in a different interest-bearing account that functions similarly to a checking account is another option for settlement offered by your insurer. Your life insurance guarantees both the initial deposit and the interest rate. Using periodic statements and free checks, you can easily pay for essential services like a nanny or tutor, similar to a checking account.
Life income annuity
This annuity pays the beneficiary income for the remainder of their life, as the name implies. When you file a claim for the death benefit amount, life insurance companies use your age to determine how much your annuity will be.
How Much Life Insurance Stay-At-Home Parents Need
Stay-at-home parents are required to have life insurance, but the amount of coverage may be unclear. Identifying life insurance needs is a challenging task, particularly for non-earning spouses, even those with a salary. When considering life insurance for parents who stay at home, there are several crucial factors to take into account.
Your coverage amount will be determined by things such as:
- Number of children in your family: The price of child care will depend on how many children you have.
- Lifestyle: Life insurance is necessary if you have possessions that you would like your family to keep having after you pass away. This includes having a large or small house, sending your children to private school, and engaging in extracurricular activities.
- Work in the future: When determining the required amount of life insurance, it is important to account for the possibility that you will return to the workforce after currently caring for your children at home.
- Legacy for your family: You might want to think about giving your kids an inheritance when they get older or providing financial assistance for college.
- Final costs: Having life insurance can help ease the financial strain of covering burial costs and other associated costs.
Stay-at-home parents are advised to purchase a 15-20-year term life insurance policy of at least $250,000-400,000. It’s acceptable to purchase life insurance that you believe you need when you’re young because it won’t cost much more. The policy states that coverage should cease after 15 or 20 years, as children should be grown and living independently.
When Should Stay-At-Home Parents Get Life Insurance
You don’t need life insurance just yet if you’re a recent college graduate with no debt. But it’s a good idea to purchase life insurance as soon as possible if you’re married and planning children.
Purchasing life insurance promptly ensures protection for you, regardless of the child’s arrival time. After all, they frequently show up earlier than you had anticipated and follow their schedule.
Final Thoughts
Parents who choose to stay at home tend to downplay their financial contribution to the family. Avoid making that error, particularly about life insurance. No one could ever replace your family’s stay-at-home caregiver, chauffeur, coach, therapist, and hugger. However, they must have the financial resources necessary to handle your most fundamental responsibilities.