Life Insurance for Stay at Home Parents

One of the key reasons to take out life insurance coverage is to help the family replace a portion of your lost income. But do stay-at-home parents need insurance if you are not earning a paycheck?

The short answer is yes.

A stay-at-home parent doesn’t contribute to the household income, but that’s not to say they don’t provide monetary benefits to their families. If you add up all the “jobs” a homemaker does — babysitting, teaching, cooking, grocery shopping, cleaning the house, driving kids to school and other places — the salary equivalent would run into several thousand a month.

Life insurance acts as a financial safety net by covering these various expenses and ensuring economic stability for the family. It not only helps with immediate costs but also ensures that financial obligations and legacy planning are managed, offering peace of mind for stay-at-home parents.

Let's dive into the details.

Key Takeaways:

• Life insurance for stay-at-home parents reduces the financial on the family’s breadwinner if the unthinkable happens.
• Several insurance options are available to stay-at-home parents, the two most popular ones being term life and whole life.
• Life insurance for stay-at-home parents acts as a financial safety net for the family, covering various expenses and ensuring economic stability.

Why is Life Insurance for Stay-At-Home Parents necessary?

It’s easy to miss the monetary contributions of stay-at-home parents. However, did you know that the contributions of an average stay-at-home parent amount to $16,000 a year (according to a Salary.com Study)? That is a serious figure. Getting insurance for stay-at-home parents ensures their passing away will not disrupt your family's financial health. 

Here are five reasons why a stay-at-home mom or dad needs insurance just as much as a working spouse. 

• Childcare is expensive

Childcare costs in Canada are among the highest in the world. Though the cost of daycare and nanny varies ferocity to city, a full-time child car will likely cost you a pretty penny. On average, Canadian families spend one-quarter of their household income on child care, which is no small percentage. 

If you are a stay-at-home mom or dad with toddlers or young kids, you are a nanny and daycare rolled into one, so your family doesn’t have to budget for these expenses. But if you were gone, your spouse would pay for childcare care costs out-of-pocket, leaving less money for other things. 

Getting insurance for yourself can mitigate your family's financial burden of untimely daily.   

• Replacing stay-at-home parent labor

All the chores for typical stay-at-home parents — including cooking, cleaning, housekeeping, carpooling, etc. — have a cost associated with it. This means if something happens to you, your spouse will be on the hook for all your labor. Putting a life cover in place ensures your family will have the funds to pay for all the jobs you do. 

• Pay for funeral costs.

The average Canadian funeral costs between $8,000 and $9,000. That may not cover the cost of a headstone, burial, and other expenses. As stay-at-home parents, we all hope to be able to give our loved ones a proper send-off when the time comes. But for many young families, coming up with that amount of money is not easy. 

They may have to use a credit card or borrow money to cover funeral costs. The stress of managing these expenses during a time of major emotional crisis can sometimes be too much to handle. Life insurance can pay for these expenses, helping your family deal with grief rather than worry about how to cover funeral costs.

• To pay off any debt

A life insurance payout can help settle loans, including student loans or personal loans. This could help reduce the financial stress for the surviving spouse. Additionally, a joint life insurance policy can be a practical option for couples to ensure both partners are covered and financial obligations are met.

• To leave a legacy

Proceeds of a life insurance policy could help you leave behind a meaningful charitable gift, such as to a cause close to your heart or a place of worship. 

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How much life insurance coverage does a stay-at-home parent need?

When calculating how much life insurance coverage stay-at-home parents need, consider all the unpaid work they do. While there’s no one-size-fits-all formula, asking yourself these questions will help you come up with an accurate estimate. Consulting with an insurance advisor can also provide valuable insights.

• How big is your family?

The more children you have, the more life insurance coverage you will need. The reason is simple: bigger families have higher childcare costs. You’ll want insurance coverage large enough to pay for childcare expenses for all of your kids until they are old enough to no longer need it.

If your spouse will need to hire someone to do other unpaid jobs that you currently do — for example, housework, cleaning, cooking, and transporting — include those costs as well when calculating the life insurance amount.

• Do you plan to return to work?

If so, consider what your income will be. Factor that into your coverage calculation, too, because your household expenses will likely increase as your household’s monthly income does.

Your policy should be large enough to replace at least a portion of the income you’ll likely earn upon returning to work. This will ensure your family will be able to maintain the living standard they’ve grown accustomed to.

Purchasing sufficient coverage now enables you to secure a lower monthly rate compared to buying additional coverage upon your return to work. This is because life insurance premiums increase, on average, 8-10% for every year of age.

• Will your spouse reduce work hours after your death?

Increase the coverage amount if your spouse will reduce their work hours or take up a more flexible job to spend more time with the children.

Available Life Insurance Policy for Stay-at-Home Parents

Stay-at-home parents have the same life insurance options available to them as someone with a working parent of the same age and similar health profile. Some main options to consider are:

Insurance policies for stay-at-home parents often include a death benefit, which provides financial support to the family in the event of the policyholder's passing.

Term Life Insurance

Term life insurance lasts for a specific amount of time, such as 10 or 20 years. It is typically the most cost-effective option when you need insurance for contemporary financial needs. For instance, as a stay-at-home mom or dad, if you want to buy insurance until your children start earning, term life can be a great option. 

Key features of term life insurance: 

• It is usually the most affordable way to buy life insurance coverage
• It provides coverage for a specific period chosen by you, and the premium rate remains the same throughout the policy term
• It doesn’t accumulate cash value
• You usually have the option to renew life insurance coverage at the end of the policy term without a new medical exam.

Whole Life Insurance

Whole life insurance lasts your entire life and includes an investment component, but it’s pricey. It can be a right fit for stay-at-home parents who want assurance that their family will eventually receive a payout or leave behind a legacy.  

Key features of whole life insurance:

• It provides coverage for as long as you live or as long as you want, and you pay the same premium rate throughout
• It builds cash value at a fixed rate, which can be accessed through withdrawals, policy loans, or surrendering the policy.
• It is up to 10 times costlier than term life insurance 

Universal Life Insurance 

Universal life insurance offers lifelong coverage and builds cash value with an investment component. But it provides more flexibility and fewer guarantees than whole life insurance. Universal life insurance is a complex financial product, requiring close monitoring and involving investment risks. Make sure you understand your plan and its terms and conditions before signing up.

Key features of universal life insurance:

• More affordable (and more complex) than whole life
• May offer flexibility in premium payments and death benefit options
• Cash value doesn’t grow at a fixed rate

Joint Life Insurance

Joint life insurance covers two people — such as married couples — but pays the death benefit only once. The death benefit is paid after the first person passes away or after both people pass away.

A joint life plan is more affordable than purchasing two policies, but it may not be the best option for every couple. For stay-at-home parents and their working spouses, a joint life insurance policy can provide higher coverage amounts and be a more practical option for financial planning. It ensures that the working spouse can secure adequate coverage while considering individual circumstances in insurance decisions. You and your spouse may want to consider it if you cannot afford two policies, one of you cannot qualify for coverage on their own, or want to leave an inheritance for your kid(s).

Key features of joint life insurance:

• Only people with shared assets can buy joint life insurance
• Joint life can be either term or permanent life insurance
• Not every insurance company offers joint life insurance

Choosing a Life Insurance Policy

The right life insurance for stay-at-home parents for you depends on your unique circumstances, financial goals, and the coverage amount you need.

Consider term life insurance if…

• You need life insurance coverage for a specific period, for example, until your children become financially independent
• You have a limited budget for insurance

Consider whole life insurance if…

• You need coverage for as long as you live
• You want a policy that grows cash value at a fixed rate
• You don’t mind paying a higher premium rate for lifelong coverage and the cash value feature

Consider universal life insurance if…

• You want a policy that offers lifelong coverage and grows cash value but gives you the freedom to adjust the premium payments and death benefit
• You want higher cash value growth potential than whole-life policies

Consider joint life insurance if…

• Your primary reason for buying insurance is to leave a payout for your child
• You or your spouse cannot get traditional coverage on their own

How much does life insurance for a stay-at-home parent cost?

Certain life insurance policy is more affordable than many people think. Take term life, for instance. For a young, healthy stay-at-home parent, it could be cheaper than a cup of coffee a day. 

Of course, everyone’s premium rate will be different since it depends on several individual factors. These include your age, gender, current health, medical history, lifestyle factors, and the policy type and coverage amount. The easiest way to determine how much insurance will cost you is to get free quotes. 

How to apply for life insurance 

If you have chosen the life insurance policy type and coverage amount, you’re ready for the next step — comparing price quotes. Shopping for insurance is not complicated and involves the following steps. 

• Get price quotes

Each life insurer assesses the level of risk you represent to them differently. This is why premium rates can vary — sometimes significantly — from one insurer to another. Grabbing quotes from multiple providers helps keep the insurance costs as low as possible.

• Fill out the life insurance application

After you have compared quotes from multiple providers and chosen the insurance company, it’s time to apply for coverage. The insurance application includes a series of questions about your health, medical history, lifestyle, etc. 

It’s important you answer all the questions truthfully. If you’re caught lying, the insurer may reject your application. Or, it may charge you a higher premium rate or reduce the death benefit amount.  

• Take the life insurance medical exam

Traditional insurance policies usually require applicants to take a simple medical exam, similar to the annual physical. The exam takes anywhere between 15 to 45 minutes and can be arranged to fit your schedule. 

• Wait for the completion of the review process

The insurer will carefully review your life insurance application and medical exam results. It may also review other things such as an attending physician statement (APS), your driving record, credit history, etc. Typically, insurance companies take a few weeks to decide whether to write you a policy and how much premium to charge you. 

• Pay the first premium

If your application has been accepted and you agree to the insurer’s terms, sign the contract and pay the first premium payment. Your insurance policy becomes effective only after you’ve made the first premium payment. 

Conclusion 

A stay-at-home parent needs life insurance no less than an earning spouse. The policy can provide the surviving spouse with funds required to pay for all or part of the jobs that stay-at-home parents held before their demise. 

If you’re not sure what type of policy or how much coverage is right for a stay-at-home parent, let Dundas Life help you. Our advisors will take the time to understand your family’s lifestyle and financial goals and offer you transparent, unbiased advice. Book your free call today.

Frequently Asked Questions (FAQs)

Are stay-at-home parents eligible for disability insurance?

Private disability insurance is typically available only to those with employment or self-employment income. For this reason, a stay-at-home parent may find it difficult to qualify for private disability insurance.  

Can stay-at-home parents qualify for life insurance if they don't have an income?

Proof of income is not required for life insurance. Stay-at-home moms and dads can (and should) buy insurance. The daily household tasks that stay-at-home parents perform could cost the surviving spouse a good sum every month if something happened to them. Insurance provides essential financial support in such situations.

Do stay-at-home parents need life insurance if their partner already has coverage?

In a word, yes. While stay-at-home parents may not bring home the bacon, the financial support they provide to their family is immense. Getting the stay-at-home mom or dad insured ensures that in case of an unfortunate event, the family’s financial planning will not suffer.

The surviving spouse can use the payout to hire someone to provide services that their spouse did for free or compensate for loss of income if they decide to reduce work hours to take care of the children. 

Can stay-at-home parents change or adjust their life insurance policy as their circumstances evolve?

You can make specific changes to your insurance policy post-purchase. For instance, you can change the beneficiary designation and your personal details at any time. Depending on the insurer, you may be able to increase the death benefit, though you may have to take a new medical exam. Reducing the sum assured after coverage has started, however, is usually not an option.

Read the policy document or contact the insurer to understand what policy changes are allowed and what are not.