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Stay-at-home parents provide countless invaluable contributions to their families that often can't be measured in dollars and cents. However, their economic contributions to their families, even if they don't come in the form of a traditional paycheck, are equally as valuable.
For example, a 2023 Care.com study found that families spend 24% of their household income on child care. The weekly average to cover child care for one child is $293, or $755 for a nanny. While it isn't something we typically want to think about, if a stay-at-home parent passes away, the surviving parent might have to pay for child care, housekeeping and other tasks out-of-pocket. As such, stay-at-home parents need life insurance to help their family financially in the event of their death.
Why Stay-at-Home Parents Need Life Insurance
The main benefit of life insurance is to replace your income so your family can financially survive if you pass away. In this context, getting life insurance for a parent that brings home an income is a no brainer. But stay-at-home parents should also consider life insurance because it could help your family cover the costs of replacing the services the parent used to provide, such as:
- Accountant
- Child care
- Driver
- Housekeeper
- Laundry attendant
- Meal service
- Nurse
- Teacher
- Pet sitter
- Tutor
A 2021 Salary.com study pegged the median annual salary equivalent of a stay-at-home parent at $184,820. These parents may not perform all the duties the site included in its analysis, but the figure demonstrates the cumulative value of the daily tasks they perform for their families. If something happens to them, the other parent might have to pay a substantial amount for services that keep your household running smoothly.
What Life Insurance for a Stay-at-Home Parent Can Cover
Whether you have term or whole life insurance, your policy could help ease the burden of the surviving parent by paying for some of the daily household tasks the stay-at-home parent provided. If your insurer approves the death benefit claim, they will issue a payout to the policy's designated beneficiaries. However, you may have several options in how to receive the benefit, including the following:
- One-time payment: Most beneficiaries elect to receive one lump-sum payment all at once. Depending on the death benefit amount, this option could help the surviving parent pay off high-balance debts, such as a mortgage. However, this option could be risky if you're not careful and need to stretch out the funds for ongoing expenses like child care.
- Specific payments over time: Rather than receiving a single lump-sum payment, the surviving parent could choose to receive a monthly payment for a specific period, such as $25,000 annually ($2,083 per month) for 20 years on a $500,000 death benefit payout. This structured payment could ensure funds don't run out too early. In this case, your life insurance company would hold the funds in an interest-earning account, and you'd be responsible for taxes on the interest the account earns.
- Retained asset account: Another settlement option is to have your insurer deposit the funds in a separate interest-earning account that operates like a checking account. Both the initial deposit and the interest rate are guaranteed by your life insurer. Like a checking account, you'll get periodic statements and free checks you can use to pay for a nanny, tutor or other essential services that the stay-at-home parent used to provide.
- Life income annuity: As its name suggests, this annuity provides the beneficiary with income for the rest of their life. Life insurance carriers calculate your annuity amount based on your age when you file the claim for the death benefit amount.
How Much Life Insurance Does a Stay-at-Home Parent Need?
Insurers commonly advise getting a coverage equal to 10 to 30 times your annual income to replace your income should you pass. But how much life insurance does a stay-at-home parent without earnings need? Broadly, the answer is to get enough insurance to pay for the essential services the surviving parent would need to pay for. Factor in income replacement if the surviving parent plans to reduce work hours to be home more.
Consider the following guidelines to help you determine how much life insurance to purchase for a stay-at-home parent:
- How much is child care in your area? Investigate the costs for child care services and after-school care in your area to help you determine this aspect of your coverage needs. If you travel for your job or work long hours, a nanny may be a better option. If you have a larger family, adjust your death benefit up, as more children will boost child care costs.
- Will you need to hire household help? Who will clean the house if the stay-at-home parent passes away? If you need to hire outside help, factor that into your coverage amount. While prices for housekeepers vary, the average hourly cost is $15, according to Housekeeper.com.
- How old are your children? Your death benefit should be substantial enough to provide for your children's needs until they are adults and no longer need care.
- Will the surviving parent return to work or reduce work hours? Increase the death benefit if the surviving parent plans to take time off to grieve and help your children heal. Alternatively, they could reduce their work hours or switch to a more flexible job that allows them to be home with your children more.
Working with an independent insurance agent with access to several life insurance companies could help you find the most suitable policy. A professional agent can ask you questions to create a policy personalized to your specific goals based on your values and desires for your family.
Maintain Good Credit for Extra Security
A life insurance policy is a wise option for stay-at-home parents to help the surviving parent pay for necessary expenses like child care and housekeeping. A policy with adequate coverage could provide peace of mind, knowing that your family will have financial support if something happens to a stay-at-home parent.
Additionally, building an emergency fund and maintaining good credit could add an extra layer of security if the working parent loses their job. Consider checking your credit report and score for free with Experian and take steps to improve your credit if necessary.