8

I know the idea is to get life insurance on anyone who has a dependent so what about a family of three with a stay at home mom?

I would assume the dependent would only be the child as I can continue to work. What I would require would be enough to offset the cost of daycare and such things.

Seems like a 10year term life would be an easy choice as only $50,000 would really be needed. Heck I can get 20 years at $50,000 for only $10.70/month.

Is it even needed or would this be one of those peace of mind payments?

19

The way to think about this is: what would happen to the family if stay-at-home Mom were to die. You obviously can't do anything about the loss, grief and trauma, but think about the financial implications.

Assuming that Dad continues to work, and that the child is young, you are going to have to find someone to take care of him/her. If you have relatives willing to step in, that may be fine. but if not you will have to pay for daycare - an expense you don't now have. That's going to get less as the child goes to school, but not go away until he/she is old enough to look after themselves.

Bringing up a child, as well as working a full time job, is pretty demanding. You may find that you don't have as much time for cleaning the house, cooking or other chores. Having a sum of money which can be used to hire help or pay for a few meals out can be very useful in these cases.

Here is an article which places a value on the work done by a stay-at-home Mom. You might not need to pay for all of those services, but it gives you an idea of what the extra expenses might be.

Think about what extra money you might need to spend, and arrange for life insurance to cover it.

  • 1
    You already had my vote, but the link to salary info is the best answer. – MrChrister Nov 1 '13 at 21:20
  • You had me at "die." I'm sad now. – JTP - Apologise to Monica Nov 1 '13 at 22:20
  • Funeral + Burial Plot: $7300, but maybe a lot more in expensive places. Cremation $1650. usatoday30.usatoday.com/news/nation/… You don't need insurance for these if you have savings. Accidental term life can be cheaper and have higher benefits (e.g. $20/mo for $500,000) than whole life, but only pays for accidents not cancer or other health problems. Car wrecks still kill lots of people.... Since you are guaranteed to die eventually, whole life ultimately behaves like a low return savings account. – Paul Nov 2 '13 at 5:33
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    Funeral + Burial Plot + headstone cost me between $20,000 and $25,000, for cremation. That was in Edmonton, Alberta, in 2011. I'm sure I could have done it for less, though I doubt for under $12,000. My wife's death (at 28 years old) was sudden and I was not capable of thinking rationally. Money was the last thing I cared about. It was a large service, but most of the cost was not affected by the number of attendees. – ChrisInEdmonton Nov 2 '13 at 16:23
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    Also, keep in mind that "Assuming that Dad continues to work" may be asking too much. It is not at all unusual that spouses are simply unable to work after such an event, for some time after. – ChrisInEdmonton Nov 2 '13 at 16:24
7

Absolutely! Just because a spouse doesn't have a taxable income, doesn't mean they aren't providing real, tangible benefit to the family economy with an important job.

As tragic as it is to consider losing your spouse, are you truly in a position to replace everything they do you for you? Knowing what they do for you and appreciating the effort your spouse gives is important, but don't sell short the dollar amount of what they provide. Your life insurance policy should be to keep you whole.

Without your spouse, you will need childcare. You might need domestic services to the home. What about a nanny or similar service? Would $50K cover that until your child is an adult? There are a number of added expenses in the short and long term that would occur if a spouse died. How much for a funeral?

Obviously you know the amount and term depends on the age of your kid. But I think you should really try to account for the number of daily hours you spouse puts in, and try to attach a cost to those hours. Then buy insurance for them just as you would for a wage earning.

For example, buy a policy that is 10x the annual cost for services it would take to compensate for your spouse. Your tolerance for risk and cost can adjust it up and down from there.

2

We asked the same question earlier this year as my wife is a SAHM with 2 young boys (5 and under). If something happened to her I'd have to quit work or change careers to stay home to raise them or something. We ended up getting a decent 20 year level TERM policy that will cover the care of both boys for many of their younger years.

The cost is negligible but the piece of mind is priceless.

1

Another source of insurance can be through the working spouses employment. Some companies do provide free or low cost coverage for spouses without a need for a physical exam. The risk is that it might not be available at the amount you want, and that if the main spouse switches companies it might not be available with the new employer. A plus is that if there is a cost it is only a one year commitment.

Term insurance is the way to go. It is simple to purchase, and not complex to understand. Sizing is key. You may need to provide some level of coverage until the youngest child is in high school or college. Of course the youngest child might not have been born yet. The longer the term, the higher the cost to account for the inflation during the period of the insurance. If the term expires, but the need still exists, it is possible to get another policy but the cost of the new term policy will be higher because the insured is older.

If there are special needs children involved the amount and length may need to be increased due to the increased costs and duration of need.

Don't forget to periodically review the insurance situation to make sure your need haven't changed so much a new level of insurance would be needed.

  • Yes, don't forget to re-evaluate your coverages needs every few years. This is what lead me to my question as we have bought a house and talking of family but I still had my very very low coverage. – uMinded Nov 4 '13 at 3:13

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