If your family depends on your income, buying life insurance for yourself is a no-brainer. They will need money to replace the money you’ve been bringing in every month. But what about your spouse who stays at home and takes care of children? Do they still need life insurance?
Absolutely. Here’s why.
The Cost of Losing a Parent
Having life insurance means that you don’t add financial stress on top of the emotional loss of a loved one. A surviving spouse is left with some pretty big financial costs to bear. And without life insurance to help cushion the blow, the weight of that responsibility can be overwhelming. Just think about a few costs to consider if a stay-at-home spouse were to pass away:
1. Funeral expenses. Unless you’ve already put aside money for this inevitability, you’re hit with a major unexpected bill looming over you. Including all expenses (cemetery plot, director’s fees, flowers, etc.), a funeral can cost around $11,000. Of course, that depends on lots of different factors, but you get the idea.
2. Child care. The costs of child care can get crazy expensive. The group ChildCare Aware of America showed that in 2015, the cost of center-based child care for two kids cost more than homeowner costs in 24 states. In some places, child care runs more than a year’s college tuition. Life insurance can take away some of that financial burden.
3. Household duties. Did your spouse do all the housework? Cooking? Lawn care? Transporting kids? Tutoring? Keeping the checkbook? These responsibilities will be on your plate unless you outsource some of them. With money from the life insurance policy, you could farm out some of the non-essentials and save yourself some time and sanity.
If your spouse was planning to go back to work when the kids started school, then you need to recover the lost income from their career. You may have been counting on that future income to pay off the mortgage or fund the kids’ college expenses.
The Nitty Gritty of Life Insurance
When you start shopping around for life insurance, you’ll need to decide how long the policy will last and how much money you want to receive should the person pass away. You’ll also need to decide how much you can afford in premiums. You want to find the sweet spot in the middle of these three factors. Here are few more things to keep in mind as you get started:
1. Buy term life insurance. Don’t get anything else. Whole life, universal life, variable life—they’re all expensive, confusing, and, well, they all stink. And don’t get sucked into gimmicks like accidental death. How your spouse died won’t change the cost of child care.
2. Base the term on your needs. The word term refers to the number of years you’re buying insurance. A thirty-year term lasts for, you guessed, 30 years. If you’re in your 20s and the first child is on the way, you’ll want a policy that will last a good bit. A five-year policy won’t cover your family should you die in your 40s.
3. Base the amount on replacing services. How much would child care be? Multiply that by the number of years you’d need it. Then, figure in all those other expenses like a funeral, counseling for the kids to help them process the loss, mortgage payments, and other variables we’ve talked about already. Keep in mind, though, that the higher the payout, the higher the premium.
4. Get covered early on. The younger you are when you buy life insurance, the less expensive it generally is. Why? Because price is based on your age, health, and risk level. A 55-year-old with a history of smoking will pay more because the risk of his untimely demise is higher than a 25-year-old non-smoker. Insurance companies are literally banking on you to stay alive.
At some point, you won’t need life insurance any more. When the nest is empty, the house is paid off, and you have $500,000 in your retirement fund, your spouse wouldn’t suffer financially if you passed away. He or she could keep their job and keep putting away for retirement without your income.
The difficult part will be the grieving. No amount of money will make that any easier, but having life insurance will ease the sting a little.
It paves the way for your family to take care of themselves when you can’t.