Life insurance is something that is vital for every adult, and some children. Life insurance provides a death benefit when one is needed most, when someone has died. There are multiple types of life insurance including term, universal life and whole life. Within those broad categories there are certain subsets like annual renewable term insurance, variable universal life insurance, indexed universal life insurance, blended whole life insurance etc. I try to help people understand how much and what kind they might need to research.
While I doubt there is anyone in today’s world who doesn’t place a value on a stay at home mom or parent, it is shocking how many times I see that the “breadwinner” is the only one with a life insurance policy. Meanwhile, the housewife, house husband, stay at home mom, stay at home dad, etc., is left completely uninsured or at the very least underinsured. As is the case with most topics dealing with personal finances there are no set rules, but rather, guidelines in helping you determine how much life insurance a stay at home parent should have.
We are going to ignore ownership, type and beneficiary issues for now and really focus on the most important thing – death benefit.
Guidelines for Purchasing Life Insurance on a Stay at Home Parent
Health and budget should be your first concern. If you are choosing between food and life insurance then I think there is an obvious decision to make, however, if you are telling me you don’t have any money for life insurance but are watching premium movie channels it is time to get some priorities in order.
Step One – Enough Life Insurance to Pay off Outstanding Debts
The first step should be enough to pay off any existing debt. This would obviously include any outstanding loans, student debt and mortgages.
Step Two – Enough Life Insurance to Pay off Outstanding Debts & Provide for an Accumulation/Education Goal
With debt paid off the next step should provide enough for an accumulation goal such as a future wedding or education funding. This is obviously going to be very subjective. How far is your child from college? Is he or she looking to go to a community college or Yale? What kind of wedding are you trying to provide? Are you comfortable with the college fund growing over time or do you want a solid number?
Step Three – Childcare & Legacy
With debts taken care of as well as a base for a natural accumulation/education goal taken care of it is now time to give thought to what you may want to leave behind should something happen to you. Maybe it is an exact dollar amount for childcare (although with no debt servicing the mortgage payment should cover a large percentage of child care in most parts of the country)? Or maybe it is more of an abstract idea that $500K at 4% will provide an additional $20,000 per year income without touching principal?
Are you a stay at home parent? Do you have insurance?