May 1, 2013
By Chris Kissell, InsWeb.com
Stay-at-home parents are the unsung heroes of their families. These tireless workers are Jacks and Jills of all trades including cooking, cleaning and shuttling children around town.
But when it comes to life insurance, many couples insure the spouse with the paid job, but do not insure the life of the stay-at-home spouse. And that is a major mistake, experts say.
"Stay-at-home parents may not earn a salary, but they still make valuable financial contributions to their families," says Stephen Rothschild, chairman of the Life and Health Insurance Foundation for Education (LIFE).
Experts say families should consider purchasing life insurance to insure the stay-at-home parent and cover the cost of services he or she provides.
Wendy Boglioli, national spokeswoman for Genworth Financial, says all stay-at-home parents should ask themselves one question:
"If you died tomorrow, would you have the money to hire people to do all of the things that you do for your family on a day-to-day and year-to-year basis?"
Stay-at-home parents and life insurance
The stay-at-home spouse often is among a family's most overlooked financial assets, says Brian Madgett, corporate vice president at New York Life.
"The economic value they bring to a family is substantial and is as important as the breadwinner's income," he says.
Some of the services stay-at-home parents provide include:
• Caring for children.
• Cleaning the house.
• Driving children to practices, events and friends' homes.
• Running errands.
• Grocery shopping.
• Caring for aging parents.
And that's just for starters, Boglioli says.
"The list goes on and on," she says. "When the person responsible for those tasks is no longer in the picture, money is going to be needed immediately so life can continue on in that household."
Jacob Gold, a retirement coach at ING, agrees that most families should consider purchasing insurance on the lives of both parents.
Term life policies are relatively cheap – $1 million in coverage may cost less than $1,000 annually for people in their 20s and 30s who are in good health, and less than $2,000 annually for people in their 40s.
So, it usually makes financial sense to buy a policy to cover the stay-at-home parent until all the children are at least 18, Gold says.
"At least have coverage until the youngest is out of the house," he says. "To me, that's the bare minimum."
It can also make sense to keep coverage longer, especially if children are going to college, he says.
How much life insurance should you buy?
Calculating the amount of cash needed to replace services provided by a stay-at-home parent can be difficult. Gold suggests using one of two different approaches.
In the first method, a couple looks at the individual roles a stay-at-home parent fills – housekeeper, cook, driver, tutor and many more – and puts a dollar figure on those jobs.
"You can put a monetary value on each of those tasks on a monthly basis," Gold says.
Salary.com offers a calculator to help you determine the amount. Each year, Salary.com looks at the typical jobs mothers and fathers perform, then calculates how much those jobs would earn in the workforce.
Salary.com estimates that a stay-at-home mom with one child who is pre-school age and another child who is school age would provide services worth a median salary of $112,963.
Meanwhile, a stay-at-home dad would be worth a median salary of $62,881.
Aaron Gouveia, a spokesman for Salary.com, says the salary information is based on mothers and fathers self-reporting how much work they do around the house. Mothers report spending many more hours doing household tasks and child care duties than fathers do, which accounts for the salary discrepancy between mothers and fathers.
Another method – and one that Gold and his wife have used – is to simply take the amount of life insurance purchased on the wage earner and duplicate that coverage for the stay-at-home parent.
The goal with this method is to provide enough income that the surviving parent can make his or her career secondary for at least a few years while devoting more time to the children.
"This way, I'm able to have that freedom to be there for my children, just as my wife would have been there every step of the way," he says.
Talk to your life insurance agent
Still unsure about how much insurance to carry on the stay-at-home spouse? A life insurance agent can help you zero in on a number that is right for you.
By purchasing the right policy, you will have one less thing to worry about at what is sure to be a difficult time, Rothschild says.
"It's tough enough for children to lose one parent, let alone have to face situations where their surviving parent may not be able to spend as much time at home in order to pay for these expenses," he says.