Life Insurance for Stay-at-home Parents

Discover why life insurance is important for stay-at-home parents.

10 Minute read
Originally published: March 13, 2023
Updated: February 20, 2024

Life Insurance for Stay at Home Parents Logo

Discover why life insurance is important for stay-at-home parents.

10 Minute read
Originally published: March 13, 2023
Updated: February 20, 2024

Life Insurance for Stay at Home Parents Logo

Being a stay-at-home parent is a full-time job, and though it may not come with a paycheck, it certainly comes with its own set of financial responsibilities. One such responsibility is ensuring that you have adequate life insurance coverage to protect your family’s financial future in the event of your unexpected passing. While life insurance may not be a topic many stay-at-home parents think about, it’s an important financial decision to consider.

Why Stay-at-home Parents Need Life Insurance

While most stay-at-home parents do not earn an income, this does not mean they don’t contribute financially to the household. By staying home to parent children and maintaining the family home, they free up time for their partner to pick up more hours working and focus on their career to earn money for the household. In addition, stay-at-home parents prevent common parental expenses such as babysitters or daycare costs.

If a stay-at-home parent unexpectedly passed away, many responsibilities would fall onto the surviving parent which could affect the household finances. These responsibilities could include household maintenance such as daily chores; shopping for essentials; and scheduling, as well as full-time childcare. In addition, an unexpected death would come with end-of-life expenses such as funeral planning and payment of any outstanding debts held by the deceased. This is why you shouldn’t procrastinate the decision to look into life insurance.

Benefits of Life Insurance for Stay-at-home Parents

There are many benefits of having life insurance as a stay-at-home parent. Some examples of how a life insurance policy can benefit a stay-at-home parent include:

  • Peace of mind that your death won’t impact your family’s financial future negatively.
  • Providing for your children’s future financial needs including education costs and basic care needs.
  • Covering the cost of any end-of-life expenses such as funeral costs and any outstanding debts such as a mortgage or car loan.
  • Tailored life insurance coverage that takes care of your specific financial needs in terms of coverage amounts and term lengths.
  • Additional benefits such as policy riders which can include critical illness and disability insurance as well as child riders that offer a small amount of life insurance coverage for your dependant children.

Here is a helpful overview of the benefits of life insurance for stay-at-home parents:

Benefits of Life Insurance for Stay-at-home Parents

How Much Life Insurance Coverage Does a Stay-at-home Parent Need?

To determine how much life insurance coverage is needed, it is important to first calculate the cost of replacing the stay-at-home parent’s responsibilities. This can include the cost of childcare, cooking, cleaning, budgeting, and other household tasks as well as any impact on the household breadwinner’s wages that may occur if they take on these responsibilities for themself. Additionally, it is important to consider your family’s financial budget and goals, the number of dependents in the household, outstanding debts such as mortgages or car loans, planned future expenses, and ongoing living expenses.

Once you have an idea how much coverage you need you should also consider if you are interested in any additional riders for your policy. These can include critical illness insurance which provides a lump sum payout if the policyholder is diagnosed with a serious illness, disability insurance which provides a payout in the event of a serious disability, as well as a child rider which can provide a small amount of life insurance coverage for dependant children and are sometimes convertible to term life insurance once the child reaches 18 or 25 years old.

You should also consider how long you will need coverage. Many stay-at-home parents decide to opt for term life insurance coverage; this means that the policy is in place for a specified number of years, typically 10, 20, or 30. Term coverage is popular as it offers the choice to be provided coverage while your child is still a dependent and can often be renewed and reassessed at the end of a term which can be necessary after a dependent child moves out.

Best Types of Life Insurance for Stay-at-home Parents

Several types of life insurance policies are well-suited for stay-at-home parents, depending on their specific needs and preferences. Here are some options to consider:

  • Term life insurance is a straightforward type of life insurance that provides coverage for a specified term, such as 10, 20, or 30 years. This type of policy can be a good option for stay-at-home parents who want affordable coverage that will provide a financial safety net for their family during the years when their children are still dependents.
  • Joint life insurance policies cover two individuals under one policy, typically a married couple. This type of policy is a good option for stay-at-home parents who want to be covered under the same policy as their working spouse.
  • Whole life insurance is a type of permanent life insurance that provides coverage for the policyholder’s entire life. This type of policy can be more expensive than term life insurance, but it also offers additional benefits, such as the ability to build cash value over time.
  • Universal life insurance: Universal life insurance is another type of permanent life insurance that provides coverage for the policyholder’s entire life. It is similar to whole life insurance but offers more control and flexibility when investing and growing the policy’s cash value.

Common Mistakes Stay-at-home Parents Make When Looking for Life Insurance

Life insurance provides a safety net in times of unexpected tragedy but can be complicated to navigate for many stay-at-home parents. Here are a few common mistakes you should avoid that stay-at-home parents might make when it comes to life insurance:

  1. Many stay-at-home parents assume that they don’t need coverage and that it is only necessary for the primary breadwinner in the family. However, it’s important to remember that stay-at-home parents provide a lot for their families and it is costly to replace the services they provide to the household if they were to pass away.
  2. Stay-at-home parents sometimes underestimate the value of their contributions to the household. For a variety of reasons, stay-at-home parents don’t always realize the value of the services they provide to their household, which can result in inadequate life insurance coverage. It’s important to accurately assess the value of your contribution to the household when determining the appropriate amount of coverage you need.
  3. Some stay-at-home parents assume that they are fully covered under their working spouse’s employer-provided coverage. However, these policies do not always offer sufficient coverage, and may not be portable if the working spouse changes jobs or becomes unemployed.
  4. Occasionally, stay-at-home parents forget to review their coverage regularly. Life insurance needs often change over time as circumstances change, such as when dependents become financially independent. This is why it’s important to review your coverage regularly to ensure that your policy meets your family’s current needs.
  5. When signing up for life insurance, some stay-at-home parents don’t fully consider additional benefits and riders the insurer offers. These benefits can include a variety of useful additions to a policy and cover a wide range of needs. It’s important to consider these additional benefits when selecting a policy to ensure that your policy provides you with coverage that meets all of your financial needs.

Case Study of a Stay-at-home Parent Interested in Life Insurance

Fatima and Malik are a married couple with two young children. Malik works as an accountant and earns a comfortable salary, while Fatima has been a stay-at-home parent since their first child was born. Fatima takes care of the children, manages the household, and provides a variety of other services that would be costly to replace if she were to pass away unexpectedly.

Currently, only Malik is covered under an individual life insurance policy offered by a popular Canadian life insurance provider. Since Fatima doesn’t have an income, the couple had never considered if life insurance was a necessary expense for her. The couple speaks with an expert financial advisor who helps them understand that life insurance coverage is just as important for Fatima as it is for Malik and recommends that they consider a policy for her as well.

After some consideration, Fatima and Malik agree and work with their advisor to determine the appropriate amount of coverage for Fatima. They consider the following:

  • Malik makes approximately $80,000 a year as an accountant and around $20,000 a year from freelancing in his spare time. However, if Fatima were to pass away, Malik would no longer have time to freelance.
  • Where they live, daycare would cost them an average of $16,000 per year for two children.
  • They currently save $5,000 per year to pay for their children’s upcoming education needs and plan to do so for the next 15 years.
  • They pay $24,000 per year on their mortgage payments and will continue to for the next 20 years.
  • The couple anticipates funeral expenses to cost around $10,000.
  • All other planned expenses necessary to maintain their current lifestyle total to approximately $45,000 per year.
  • They expect their children will become financially independent in the next 15 years.

Considering all of that, they add up how much they anticipate spending if Fatima were to pass away:

$16,000 + $5,000 + $24,000 + $10,000 + $45,000 = $100,000

Therefore, Malik and Fatima decide to get $100,000 of coverage with a 15-year term as the coverage amount covers a year’s worth of anticipated expenses with a policy that will be in place until their children become financially independent.

Here is a quick reference for how Fatima determined her life insurance needs:

Case Study - Life Insurance for Stay-at-Home Parents

Frequently Asked Questions (FAQs) About Life Insurance for Stay-at-Home Parents

The value of a stay-at-home parent’s contributions to the household can be calculated by determining the cost of replacing their services and considering the additional financial impact on the breadwinner of the family if they must take over some or all of these responsibilities. For example, you might consider the average cost of daycare in your city, the cost of a house cleaner to take over household maintenance, the time spent doing household tasks such as scheduling, shopping, driving children to school or other events, and so on as well as how taking over these tasks would affect income, overtime, or freelancing done by the breadwinner of the family.

A stay-at-home parent can purchase an individual life insurance policy, even if they don’t have their own source of income. However, the coverage amount they qualify for may be limited by the insurance company’s underwriting guidelines.

In some cases, it may be more practical for the working spouse to purchase life insurance for both themselves and their stay-at-home partner with a joint life insurance policy, as the working spouse typically has an income and is therefore more likely to qualify for higher coverage amounts. However, this isn’t always the case, and it’s important to consider your unique financial situation when choosing a life insurance policy.

Regardless of whether both parents in a household work to earn income or not, it is important to consider how an unexpected death would affect your family financially. The death of a spouse almost always affects the household income, whether they are a stay-at-home parent or full-time worker. You should carefully consider your insurance needs and speak to a knowledgeable life insurance expert to determine how much life insurance coverage your family requires.

Find a Solution That’s Right for Your Family

Stay-at-home parents provide invaluable services that are essential to a household’s functioning. While they may not have a traditional salary or income, the financial impact of their contributions is significant and should be considered when determining an appropriate amount of life insurance coverage. By accurately assessing the value of their contributions stay-at-home parents can ensure that their family’s financial future is protected in the event of an unexpected death.

If you’re a stay-at-home parent, it’s important to accurately assess the value of your contributions to the household when determining what life insurance coverage is right for you. Protect Your Wealth can help by guiding you through the process and by finding the right insurance policy for your family, at no cost to you. To schedule a consultation about your income protection goals please contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, British Columbia, and Alberta including areas such as Kingston, Medicine Hat, and Surrey.

Talk to one of our experienced advisors today!

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