A life insurance policy for a stay-at-home parent doesn't replace their income—it provides the money necessary to cover all the jobs the SAHP did before they passed away.
At a minimum, the homemaker probably will need at least $10,000 in life insurance just to cover funeral related expenses. But beyond funeral costs, there could be unpaid medical bills as a result of a series of treatments prior to death, as well as a host of other expenses incurred as a result.
Both parents do need life insurance. Even if one parent isn't working, the domestic work that they provide, including childcare, would need to be outsourced if they were not around, and that could have a significant impact on your budget.
Without life insurance, you could face a financial calamity that greatly expands your existing debt burden. If you have outstanding debts, including student loans, at the time of your death but no life insurance, your family may be held liable to pay off those debts.
If you're 29 and single, you DO NOT need life insurance. If you're 27, married, and both you and your spouse work, you might not need life insurance yet, but you may want to start thinking about it anyway.
Buying Life Insurance as a Stay-At-Home Parent
Thankfully, you can get enough life insurance to cover the loss of a stay-at-home parent without breaking your bank. Even if you don't want to buy a $1 million plan, you should still have a plan to help ease the financial burden of losing a parent.
The big question is how much term life insurance you should purchase for the stay-at-home parent. There's no one-size-fits-all answer to this because every family is different, but a 15- to 20-year policy between $250,000–400,000 is a general rule.
This will give you about $10,000 to $15,000 worth of coverage should one of your children pass. This amount should be enough to cover most or all of the funeral costs. However, after the loss of a child, you are likely to need time off work.
Before pregnancy
If you're planning on starting a family, the best time to apply for life insurance is before you get pregnant. Life insurance rates increase by 4.5-9% each year you age. If you know you want to start a family in the not-so-distant future, you can lock in affordable premiums now that last for decades.
To give your child a healthy amount of financial security, you might consider $25,000 to $50,000 in coverage – a nice leg up on the future. The more coverage you buy, the bigger the policy's cash value can become.
If you die without life insurance, your family will have to worry about all of your final expenses. These include paying for your funeral and burial out of pocket and dealing with any taxes or debts themselves. They also won't have much leeway in terms of financial security.
You're the breadwinner
Most experts recommend having a policy that's 5 to 10 times your annual salary. If you are the breadwinner that supports a spouse and children, use a life insurance calculator to help determine the right amount of coverage to protect your loved ones.
Self-Insure. If you can't get standard term or whole life insurance coverage through any other avenues, the next best choice may be to provide your own insurance backup plan. The purpose of life insurance is to make sure your loved ones are financially secure if something happens to you.
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