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Don’t Ignore the Long Term Financial Ramifications of Ignoring your Short Term Insurance Needs:
Your surviving spouse’s life will never be the same if you die, that cannot be changed -but don’t leave her holding the financial bag forever.
Life insurance has evolved dramatically in the last fifty or sixty years, and so has our society. The days of June Cleaver staying home with the children while she cooks and cleans the house are evaporating.
Multiple trends are affecting our lifestyle and these include more Moms joining the workforce and more Dads staying home with the kids.
Spending time home to raise a family can be a very joyous experience, but there are numerous financial pitfalls that these families face when making this change.
Obviously decreased income is on most parents’ minds, but the group term life coverage that they may have enjoyed at their previous job will now be gone.
Many families wade into the problem without carefully considering all of the angles, which is understandable given the complexities of raising a modern family.
The two parents may come to some agreement whereby the Dad temporarily quits his job to provide love and support to their young children, with the agreement that he will go back to work when the children are enrolled full time in first or second grade.
But during that four year period that Stay at Home Dad’s family is extremely exposed.
This short term plan has huge long term ramifications and presents a massive coverage gap for either a mother or a father that choose to stay home with the kids.
The Obvious Person to be covered
Although most consumers now seem aware of the need to provide temporary insurance for the working spouse via a term policy, few seem to see the need for the non-working spouse to also seek insurance.
The basic idea for the working mom is to provide replacement income in the case of an untimely death.
The Less Obvious Person that needs to be covered
Having spoken to numerous families over the years, I have become accustomed to having to convince stay at home moms about the need for life insurance, but I still have not perfected the skill on the stay at home dads. For some reason, they are more cavalier, perhaps riskier.
But a Stay at Home Dad need’s life insurance every bit as much as a Stay at Home Moms does.
Calculating Stay at Home Dads and their Coverage Needs
Discovering how much life insurance to procure for the stay at home parent can be rather difficult, especially when compared with a similar computation for the working spouse. However just because it’s not easy, does not mean that your stay at home dad does not need life insurance.
There are various methods to calculating insurance needs for stay at home dads. Below are two methods.
The Simple Way
If there is an easy way, this may be it. It is often recommended that the working spouse buy about ten times income in life insurance. Therefore the non-working spouse could shoot for about 60% of this. This method is far from perfect though.
The More Complex Way
One could make this about as complex as they like, however, a smart way of doing this would be to add up all of the anticipated new and increased costs for your surviving spouse to raise your children alone. These would include:
- Nanny / Babysitting Costs
- Increased Transportation Costs
- Meal Delivery and Laundry Services
- Increased Transportation costs to see extended family
- Family Therapy Sessions
All of these yearly costs would then be multiplied by the number of years left until your oldest child will be self-sufficient and on their own.
Admittedly there are issues with the method of calculation, especially when you consider that the types of costs will change from year to year. Your youngest child is not likely going to need to have a nanny when they are fifteen.
However this method does expose the cold brutal reality of financially planning on raising children as a single parent.
Other Potential Coverage Amounts to Consider
There are a few more dollar figures to consider when deciding how much life insurance for your stay at home dad to consider.
- Do you want the life insurance to fund college?
- Do you want the insurance to pay off the mortgage?
- Does the surviving spouse want to continue to work?
These three cost considerations have the ability to blow out your budget, but that does not mean they should be ignored. The reality is that when we have our first child we take on a large series of costs that could last a lifetime. These need to be planned for.
How to Simply Buy Term Life Insurance
Now that you are armed with how much life insurance you need, you should be able to go and hunt for a simple level term life insurance policy.
The first rule of buying life insurance is, unless you have a special situation, stick with term life insurance.
Although many pushy agents will suggest you mix your investments with your insurance via a needlessly complex whole or universal life policy, you will be just fine with term life.
The second best practice is to shop around and speak with multiple life agents, including at least one that is an independent. Many insurance agents are legally bound to provide insurance from only one group of companies.
Sometimes these “captive” agents may be able to solve your life needs, but other times their prices will not be as competitive as the independents.
A third best practice to consider is go ahead and get something sooner, rather than later. In other words – Don’t Wait. In general a less than perfect term life policy now can usually be replaced at a later time.
Term life insurance is generally pennies on the dollar in comparison to their expensive cousin whole life insurance and can typically be cancelled at each payment installment if you so choose.
The last best practice involves checking the financial strength rating of whichever life insurance company that you choose, before you buy it. In short a financial strength rating is financial assessment of an insurance companies’ ability to pay back claims. Shoot for A- rated companies and better.
If you follow these simple best practices you will certainly be in a better place than if choose to ignore your short term coverage gap.
A Special Consideration
When you go to purchase your life insurance you will probably want to shoot for an amount that is less than the total amount that the working spouse has. This somewhat antiquated rule is in place for a number of reasons.
Families can occasionally work around this by purchasing one life insurance policy for each spouse, at the same time and thereby increasing both the working and non-working spouse’s coverage together.
The Best Long Term Plan
Sometimes the best way to cover a short term coverage gap is to have a long term plan. A 20 year level term life insurance policy, although it may not be your entire life may be just long enough to allow you some breathing room.
The best way to provide for your family as a Stay at Home Dad is to think and plan long term and those plans can’t ignore short term life insurance coverage gaps that may arise.
Speak with an independent life insurance agent and ask them- How am I protected?
