A common family dynamic is that one person makes most or all of the family income while the other works primarily inside the home, especially if the family includes small children. Life insurance is an important consideration for all parents and families, but is often ignored or put off. It can be confusing when all the family income comes from one spouse. Here are some guidelines when evaluating your life insurance coverage for a one-income household:
- How much do you need?
A good rule of thumb to arrive at the amount of life insurance you need is 7-10 times your income. This may sound like a huge number, but replacing one’s income for an extended amount of time can really add up. For instance, if the sole breadwinner of the household passes away, the surviving family members will need to replace his or her income in order to maintain their lifestyle. There are several things you should consider when evaluating your life insurance coverage, including the amount of debt you carry, your long term plans, current and future education costs, childcare expenses, and your spending goals. If the breadwinner passes away, would the other spouse join the work force or work inside the home? Would you want the mortgage and other debts paid off so that the surviving spouse does not have to worry about the payments? Would you like to have enough money to provide for your children’s college education? If the surviving spouse does plan to work outside the home, they would need to start paying for childcare, which can be expensive.
- Don’t forget to cover the stay-at-home spouse.
It is a common misconception that the person working inside of the home does not need life insurance coverage. There are several financial factors to consider if the non-income producing spouse passes away. The working spouse will now need to find childcare and potentially find transportation to take the children to and from school or daycare. If the working spouse frequently travels, they will need to provide overnight care for the kids. The surviving spouse may need help with home maintenance, cleaning, and meal preparation if they work crazy or long hours. Losing a stay-at-home spouse can greatly affect cash flow in the future and change the lifestyle of the existing family members if they are not appropriately insured.
- Shop Around.
Many employers offer life insurance for their employees, often at no cost to the employee – which is a great perk. However, most people do not stay with the same company for their entire working career which could lead to a gap in coverage. I encourage folks to obtain life insurance coverage outside of their employers that way it stays in place if they have a lull in employment or move to a new firm. It is also important to shop around. If you work with an insurance agent, get quotes, but also be sure you are getting the best deal. If the agent is a “captive” agent (meaning that they can only write policies for a single company) you may be paying more than you should. An independent insurance broker should be able to shop several companies to find you the best deal. If you are buying Term insurance (insurance that is in effect for a specific term – 10 years, 20 years, etc.), the premiums are usually very reasonable and more affordable than you might think. You can also check out the website www.term4sale.com to get a ballpark range of what a policy might cost you.
Life insurance is a key component for protecting your family from the unknown. Hopefully you will outlive the need for such coverage, but if you don’t, your family will be grateful that you had the coverage in place. Your family without you in it is not fun to think or talk about, but planning ahead could make a big difference for your family’s future.