How much life insurance does a stay at home parent (SAHP) need? If we are assuming that the need for life insurance is based around your income then we might arrive at the answer of ‘none’. However it’s not quite as simple as that. Let’s look at two ways a stay at home parent may need life insurance, and how to figure out how much. (I’m using ‘SAHP as a proxy for stay at home parent. And I’m going to use the word ‘working’ as a proxy for ‘working outside the home’.)
First, while not earning a specific measurable income, there is a definite monetary value to the work done by stay at home parents. That work would need to be replaced by someone else should the stay at home parent pass away. General child rearing, babysitting, housework, it’s all work that would need to be performed by someone else, for pay.
If we assume that paying someone to do these tasks would cost about $15,000 to $25,000 per year, and that we would need to replace that value for 10 to 20 years we have numbers we can start plugging into our life insurance calculator. Doing so produces a total insurance need in the range of $250,000 to $500,000.
This first approach is based on the idea that should the stay at home parent pass, the working parent would continue to work and provide some other arrangement for child and home care. However some people prefer the idea that the working parent would quit work and take over child rearing. If that’s the case, then the SAHM needs as much insurance as the working parent. That’s because the death of the SAHM causes a loss of the working parent’s income (because they quit).
It’s generally as easy as that. If you determine that the working parent would continue to work, then $250,000 to $500,000 is appropriate. If you determine that the working parent would quit work, then the stay at home mom should have the same amount of insurance as the working parent.