Imagine Replacing the tasks a stay at home mom does, even if the only expense were daycare, this can EASILY run to $2,000 a month for 2 kids. When we think of life insurance most of the time we are looking at income replacement for someone whose income is used to provide for others. Although a stay at home parent doesn’t generate any income, replacing the tasks they accomplish is very costly. Not only is there a major need for stay at home parents to have life insurance, but the need is also greater than that from the primary earner.
Income Replacement: Social Security Survivor Benefits For A Stay At Home Mom:
The main reason that stay at home parents need life insurance more than a primary earner is because in all likelihood a stay at home parent’s Social Security benefits will be substantially less than the primary earner. Most likely, a young stay at home parent will have fewer years in the workforce total and lower dollar amounts than the primary earner. The Social Security survivor benefits will therefore be significantly less.
As an example, we used the Social Security Estimator from SSA.gov, and The MFB (Maximum Family Benefit) for Mrs C. is $1,200 a month, While the MFB for myself is $3,200 a month. Based on her age, they are counting her top 4 years of income, and each year will add one more year. For people under 29, only the top 2 earning years are counted. For a stay at home parent who has spent many years out of the workforce it won’t take long after age 30 for the number of years used in the Social Security formula to outweigh the number of years worked. This will quickly drive down Social Security survivor benefits. Since Mrs. C. had one large year recently that was an outlier, if we were to remove that her Social Security benefits would fall to below $1,000 a month.
There is no way that in our situation I could afford child care, get kids picked up/dropped off from school, and a myriad of other tasks complete with $1,000 a month, whereas with some fiscal discipline, Mrs. C. could make things work with $3,200 a month. Life insurance is still very important for primary earners to have, but I maintain that it is essential for stay at home parents to get.
How Much Life Insurance For A Stay At Home Mom?
I spent a lot of time analyzing life insurance policies and to get the best bang for your buck the $250,000 10 year policy tends to be the lowest amount that makes sense to buy, There is little cost savings in getting a lower dollar amount policy, for example a healthy 30 year old woman can get a $125,000 10 year policy costing $7.72 a month, while a $250,000 10 year policy costs $8.96 a month, a $500,000 policy costs $12.62. Think about that, for Only $1.25, per month you can go from $125,000 in coverage to $250,000. Here is a quick chart I made up from the quotes available from Zander Insurance. Note: I did not include the prices for smokers on here, but by and large they are about 2 – 3 times more expensive.
The bottom line is that Life Insurance is so cheap it makes absolutely no sense that so few people have it. I am constantly hearing horror stories of parents dying who have young children and no life insurance. Most of us spend $150 a month on cable without even thinking about it, but somehow we can’t afford to spend $30 a month for both parents to have term life insurance? At a minimum for a stay at home parent I would get a $250,000 10 year policy, but would strongly consider getting a 20 year to be on the safe side.
10 Year Policy Vs. 20 Year Policy For A Stay At Home Mom
A 10 year policy as a minimum covers the most expensive part of having children, when they are under the age of 5. Children under 5 need to be watched constantly, but once they hit 5 can be enrolled in school which can take a large financial pressure off in terms of childcare. Another advantage of a 10 year policy is that it is less expensive than a 20 year policy because of the uncertainty assigned to your health over that time. IF you remain in the same overall health AND remember to get a new policy it will be substantially cheaper over the long term to get a 10 year policy now, and a new 10 year policy in 10 years.
For example: For a 20 year old and a 30 year old the 10 year policies are the same cost. If the goal is to be insured from age 20 to age 40, using 2 10 year $500,000 policies you would save $4.59 a month for 20 years, which adds up to $1,100 over the course of the policy. The question is, is it worth going through the process again to get insured, and is $1,100 over 20 years worth the risk that your health will stay excellent over the next 10 years? For myself I felt more comfortable paying the extra $5 a month to not have to worry about what my health would be like in 10 years and it is nice to know that I don’t have to think about life insurance anymore, that the action I took 5 years ago will cover my kids into adulthood.
Another situation where a shorter term may make sense is if you are currently a smoker but plan on quitting. If this is the case I would get a 10 year policy and once I hit the 1 year mark of non-smoking get another term life quote and cancel the first policy once the new one, adjusted for having quit smoking is in place.
Life Insurance Medical Check:
With most Insurance policies there will be a quick medical check in order to obtain life insurance. When I got my life insurance a technician came to my house, went over the questionnaire with me and took my blood pressure and a urine sample. If you are being offered life insurance without having to go through a medical exam or fill out a health questionnaire you will be paying far higher premiums for the extra risk the insurer is taking on.