We all know that the primary purpose of life insurance is to provide financial support for surviving loved ones. Even in cases where there is no one left behind, it makes sense that a person makes financial arrangements for their burial using life insurance. There are, however, situations where many life insurance shoppers make assumptions about coverage, and in most cases, they fail to see the big picture. Especially when considering a stay-at-home parent.
As an insurance professional, I have spoken with many prospects who have made assumptions about life insurance coverage based on what they’ve heard from friends and coworkers who typically offer advice that is not based on events but rather, based on opinions.
Here’s an assumption that I hear a lot that kind of makes sense to the prospect until I provide an accurate financial picture for them.
“Why should I insure my spouse when she (or he) is a stay-at-home parent? Are you kidding me? Actually, I love talking about this because I always win the debate.
What is the Financial Value of a Stay-At-Home Parent?
Published reports for the value of a stay-at-home parent are pretty much all over the place. In many cases, the hours for each task are not quantified correctly, or the job description for a task may not be selected properly, but we need to start somewhere.
Here is a breakdown published by Salary.com, a well-known research company on employee compensation.
|JOB||HOURS PER WEEK||COMPENSATION|
Certainly, there are many stay-at-home parents out there that will find inaccuracies with this estimate, but it is, nonetheless, a fairly accurate estimate. It has some glaring omissions of tasks like nursing assistant, entertainment provider, and event planner. But, it’s a great starting point to help paint the financial picture for the working parent shopping for insurance.
Who Should be Insured in Every Household?
The short answer is “everyone.” Certainly, a breadwinner should carry sufficient life insurance so the surviving family members can continue in the home and cover financial obligations. And absolutely the stay-at-home parent must be insured to cover the costs that will continue for children in the household. Moreover, the $112,962 listed above will fall short of replacing services provided by a stay-at-home parent for two very important reasons:
- The $112,962 is for one year only. What if your surviving child is only three or four years old?
- What if you have four or five children in the household? Certainly, $112,962 will fall well short of replacing household services for multiple children.
How Can I Afford All this Life Insurance?
This is the best part of the solution. If you are the breadwinner in a household with a stay-at-home parent and young children, it is likely that you are still considered a young adult, and it’s likely that you and your spouse are healthy.
Because you and your spouse are young and healthy, you will be able to purchase a boatload of Term Life insurance at a very affordable rate. And don’t forget to insure your children on that policy as well. The last thing a young couple wants to deal with after losing a child is to have to clean out what little of savings they may have so they can pay for a $10,000 funeral after the tragic death of a child.
How Much Insurance Should I Buy?
When it comes to Insurance FAQs, this is always in the top five. Fortunately, all independent insurance agents know how to prepare an insurance “needs analysis” and will be happy to do so. A needs analysis helps you determine the amount of life insurance needed for you and your family at a point in time. You can download a simple needs analysis here to get an idea of what financial information your agent will need to accurately predict your life insurance needs.
The main financial needs that you should consider are:
- Living expenses for at least five years
- Pay off Mortgage
- Pay off vehicle loans
- Pay down personal debt
- Fund college tuition
- Fund funeral and burial expenses
Your independent insurance agent can go over each need that can be projected and then takes into consideration liquid assets that are currently on hand. If you are unable to afford the life insurance needed to cover each category, then do your best to cover as many as possible.
Ask about the Guaranteed Insurability Rider
The one sure thing that we can know about your life insurance needs is that they will change over time. For this reason, you should inquire about a guaranteed insurability option that will allow you to purchase more coverage at a later date without having to prove you are still healthy. Regretfully, many breadwinners put their job ahead of their health, so there is no guarantee that you will be able to meet underwriting standards five or ten years in the future.A guaranteed insurability option will help you overcome health issues that you might develop along the way.