The importance of life insurance for the stay-at-home spouse
The economic impact is far greater than you might think
Most people agree that the wage earner in any family should have life insurance protection. After all, how would the family survive without a breadwinner's income? But, what if something were to happen to a stay-at-home spouse? There could also be a tremendous financial impact.
Indeed, while everyone recognizes the vital role of the family homemaker, few people stop to think about the cost of services performed by the stay-at-home spouse. This includes childcare, looking after the home, preparing meals, and many other time-consuming activities, like carpooling, laundry, and grocery shopping. The average price of full-time care for an infant in a center was as high as almost $15,000 a year.1 That's why it's crucial for a stay-at-home spouse to have his or her own life insurance protection.
The Valuable Contribution of the Stay-at-Home Spouse
Despite the importance of the stay-at-home parent, there's little research to quantify its value. In its 2012, Mom Salary Survey, Salary.com reported the ten most popular functions performed by mothers equates to $115,431 per year vs. a working mother's salary of $63,4471. It further states the stay-at-home spouse works a 96+hour week, serving as housekeeper, teacher, cook, psychologist, and van driver - in short, functioning as a CEO at home.
How Much Life Insurance Do You Need?
There are no hard and fast rules for determining how much life insurance is enough, because no two families have exactly the same needs or resources. As a general rule of thumb, though, the appropriate amount of insurance protection could equal up to an individual's annual salary times the number of years before the youngest child is out of college, depending on other available income or resources.
When calculating an amount for a stay-at-home spouse, the annual financial value of the services they provide should be used. Let's say you determine that the financial value of the services a stay-at-home spouse provides for your family equals $50,000 a year. If your youngest child will finish college in 15 years, the appropriate amount of insurance protection needed for the stay-at-home spouse would be approximately $750,000, depending on other available income or resources.
Some other things you might consider in determining an insurance amount include funeral costs, medical expenses, probate fees, estate taxes and inflation. Your insurance agent can help you determine how much life insurance you will need.
Your Life Insurance Choices
There are two basic types of life insurance protection for you to choose from--term and permanent.
Term insurance provides affordable coverage for a specific number of years. This is often the choice when protection needs are high for a limited period of time and affordability is an issue. Term insurance allows you to obtain crucial death benefit protection at a lower cost than permanent insurance.
There are term policies ranging from 5 years to 20 years. Many of these are renewable. However, a term policy is only in force for a specific time and once it expires, you lose the death benefit. In addition, if you plan on renewing your policy for a number of years, the long-term costs could be expensive.
The other option is permanent life insurance. Permanent life insurance provides protection for your entire life (provided premiums are paid) and accumulates cash value tax-deferred. This cash value can be borrowed against in times of need--such as for funding education, buying a home, and supplementing retirement income- although any unpaid loans accrue interest and also will reduce the policy's cash value and death benefit. There are pros and cons to each type of insurance protection and the best option for you depends on your needs. However, if the choice is between term coverage and no coverage at all, term is likely the better choice.
There's a wide range of term and permanent life insurance products available to meet your specific needs. Your life insurance agent can explain the choices available to you.
Remember Your Work-at-Home Spouse in Your Insurance Planning
It can be very easy to overlook the financial contributions of a work-at-home spouse--that is, until the person is gone. If you or your spouse decides to remain at home to care for your children, don't forget that the contribution of the stay-at-home spouse can equal tens of thousands of dollars a year. The loss of a parent is hard enough on a family; purchasing insurance coverage for a stay-at-home spouse can help ensure that it doesn't become a financial hardship as well.
1 "Parents and the High Cost of Child Care: 2012 Update,"National Association of Child Care Resource & Referral Agencies (NACCRRA)
This material is being provided for informational purposes only. Neither New York Life nor its agents provide legal, tax or accounting advice. Please contact your own advisors for legal, tax and accounting advice.