Mothers with children aged between 3 and 4 have the lowest rate of employment of all adults, highlighting the existence of stay-at-home parents.
However, since the 1950’s we have seen a decline in the number of stay-at-home parents. This is in part due to the introduction of free childcare hours and the rising cost of living, often demanding two salaries. That said, 25% of mothers still stay-at-home to care for their children full-time.
Whilst stay-at-home parents may not bring any tangible income into the household, they fulfil an enormous number of jobs around the home.
Have a think for a second about how your family would replace these roles if the worst were to happen and the costs involved.
The infographic below from life insurance broker Reassured shows the true value of a stay at home parent:
Don’t just protect the family breadwinner
When only one parent is bringing in a wage, it is easy to believe that only they require life insurance cover. After all, if they were to die, all income would be lost.
However, equally, if the stay-at-home parent were to die, income would be inadvertently lost through additional childcare costs, the need for reduced working hours for the remaining parent and all the other costs highlighted above.
The death of a stay-at-home parent brings with it an estimated financial risk of £29,812 a year (source: SunLife). Subtracting this amount from your yearly income, could you afford mortgage repayments, debt payments and day-to-day living costs?
To ensure long-term financial security if the worst were to happen, it is best for both parents, regardless of employment status, to secure life insurance.
Which life insurance policy?
Taking out life insurance as a stay-at-home parent is no different than it is for anyone else. You determine your cover amount, how long you require cover for and then continue to pay your monthly premiums for the term of the policy. If you were to die within this time frame, your beneficiaries will receive a pay out.
There are three main types of life insurance offered to parents:
- Level term life insurance
- Decreasing term life insurance
- Family income benefit (or FIB).
The payout sum for level term life insurance remains consistent throughout the term of the policy. Therefore, if you die before your policy expires, your beneficiaries receive the full amount which was agreed at the start of the policy. This type of policy is good for covering an interest-only mortgage and/or providing an inheritance for your loved ones.
With decreasing life insurance, the pay out sum decreases over the course of the policy, meaning that the later into the policy you die, the lesser the pay out amount. This type of cover is ideal for covering debts such as a repayment mortgage – as the amount you owe on your home decreases so does the pay out amount.
Due to the decreasing value of the pay out sum with regards to decreasing life insurance, these policy types are usually cheaper than the eqivalent level term policy.
The final type of policy differs in the sense that rather than providing one large sum payout, it provides monthly tax-free payments for the remaining course of the policy. Family income benefit is ideal for ensuring your family can afford day-to-day living costs.
If you are looking to cover more than one aspect, for example, a mortgage and daily living costs, it is possible to take out multiple policies simultaneously.
For example, you could take out a decreasing term policy to cover your repayment mortgage debt and secure the family home. As well as a family income benefit policy to meet future living costs if the worst were to happen.
Joint life insurance
If in a couple, it can be beneficial to take out a joint life insurance policy with your partner. Not only is the application process more simple than carrying out two applications, but it also means only paying one premium as opposed to two on a monthly basis.
On the other hand, unfortunately, joint life insurance policies only pay out once. This is usually on the first death and then leaves the remaining partner uninsured. Whilst they can then look to take out a single policy, their increased age is likely to result in higher monthly premiums. Equally, if both parents die at the same time, only one payout sum is provided. This may not be sufficient enough to cover the financial absense of both parents leaving your child in a difficult position.
As you can see, even as a stay-at-home parent with no physical income, your death could result in financial disarray for your family.
Securing adequate life insurance can eliminate this impact. Understandably your emotional presence can never be replaced, but at least you can rest assured that your family will not suffer financial burden if you were no longer around.
- It is just as important for a stay at home parent to have sufficient life insurance cover as it is for working parents
- The process for stay at home parents to secure this cover is the same as anyone else
- Even though no tangible income will be lost, inadvertently it could be lost through the need for additional childcare or reduced working hours
- Taking out joint life insurance is a cheaper option, however it will only provide one pay out.