Brian Gruss Licensed Insurance Planner

Life Insurance Needs for a Stay-at-Home Spouse

The death of a parent is a devastating event for a family, but the death of a stay-at-home parent can have more than just an emotional impact.  Most families ensure that the wage-earning spouse has life insurance, but what about the stay-at-home parent?

Every family knows the emotional value of the stay-at-home spouse, but what about the literal value of the services that parent provides?  Consider the value of childcare, housekeeping, cooking meals, doing laundry, providing transportation, grocery shopping, arranging home maintenance, etc.  The cost of childcare outside the home is high, at an average of almost $9,000 per year, and can be higher for infants and toddlers.^[1] By looking at the financial equivalent of all the services the stay-at-home spouse provides you can begin to get an idea of the financial impact of that parent’s death on the family.

As soon as the stay-at-home parent becomes ill or passes away, the need for their services begins.  Initially, you may be fortunate enough to have family or friends help out, but it is unlikely that their generosity can continue indefinitely, as they may have their own families to look after.  By providing a stay-at-home spouse with their own life insurance policy, the family can deal with the emotional impact of the loss without worry for the financial impact.

You may be wondering how much life insurance you will need.  It’s an individual answer, as there are no set guidelines and each family is unique.  Look at how your family operates and what services the stay-at-home parent provides.  Generally, you should consider enough insurance protection to cover an individual’s salary for the number of years until the youngest child has graduated college.  In the case of a stay-at-home spouse, the salary would be the literal value of the services provided.  You may also want to consider funeral costs, medical expenses, estate taxes and inflation in your calculations.

There are two basic types of life insurance you can choose from:  term insurance and permanent life insurance.  Term insurance is an affordable way to obtain the death benefit protection at a lower cost than permanent life insurance.  Term policies typically range from 5 to 20 years and may be renewable.  The term policy’s death benefit is only in effect for the duration of the policy.  Renewing the policy can be an expensive option in the long term, but converting the term policy to a permanent life insurance policy may be an option during the first few years of the policy.  Look for a term policy with a conversion privilege so that if you do decide to switch to permanent life insurance, you can avoid having to submit evidence of insurability.

Permanent life insurance can offer coverage for your entire life and accumulate tax deferred cash value. The cash value can be borrowed against for buying a home or paying for college.  Also, the death benefit is typically guaranteed as long as your premiums have been paid and there are no loans due against the policy.  Many permanent life insurance policies allow you to lock in the premium amount for the life of the policy, giving you the comfort of a known premium for the future.

Whichever type of policy you choose, consider life insurance for the stay-at-home spouse in your family.  It can allow you the freedom to be with your family and attend to their emotional needs during a difficult time, instead of focusing on financial ones.

^[1] See www.childcare-guide.com for more information.

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Keep an Eye on Your Term Life Conversion Period

Term life insurance is a valuable financial tool for young families. The coverage guarantees a fixed benefit if the policyholder dies within a certain period of time. This protection can make all the difference if the family wage earner dies at an early age and the stay-at-home spouse has to continue to care for the family. It is a cost-effective means for wage earners to ensure their family is protected even after they are gone.

However, if the insured outlives the term, the policy expires and the insurance company keeps the premiums. In most cases, the policy owner does outlive the term. That’s why this coverage costs far less than permanent insurance. The insurance company assumes there is very little risk that they will ever have to pay the stated death benefit.

Much of the appeal of term insurance for young families is its low cost. They typically have significant other debt like mortgages and student loans, so there isn’t a lot of money available to pay insurance premiums. Term life insurance provides an affordable coverage option. When these families purchase the insurance, they aren’t overly concerned about the conversion clause. This is the ability to convert the term insurance to permanent insurance for additional premiums, but without having to undergo a medical examination. This lack of concern is where the problem occurs. As the family matures and the wage owners age, the policy gets closer to expiration and it should be converted to permanent insurance.  If the policyholder isn’t mindful of the situation, the policy could expire and the family would be without coverage. It is especially important if the wage earner has developed a medical condition. By converting within the conversion period, the policyholder can obtain permanent insurance at a much lower rate than if they had to complete a medical examination first.

Some term policies don’t have conversion clauses. Those that do, come with higher premiums. The extra cost is money well spent because no one knows what physical shape they will be in 10 or 20 years into the future. It is best to prepare for the eventualities of a medical condition than to be faced with it and have difficulty finding insurance.

The safest way to prevent yourself from missing your conversion window is to review your policy with your insurance agent each year. Brian Gruss can help you convert your term insurance into a permanent policy that will best suit your family’s current financial needs.

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As Your Income Grows, So Should Your Life Insurance Coverage

Most people fail to realize that when they accomplish goals like earning more money and achieving a higher standard of living, they increase their need for life insurance. That’s because life insurance provides support for your dependents if you die prematurely. It allows your family to maintain the same standard of living they have become accustomed to, even after you die.

Just think of the many ways your family depends upon your income and what would happen if it were suddenly taken from them with no replacement. If you have a stay-at-home spouse, they may need the death benefit proceeds from a policy to pay the mortgage or save for your children’s education. The money your spouse receives from the death benefit can help them continue to care for your family in the interim while looking for a job. Without that financial cushion, your spouse might have to sell the house or your children may have to delay going to college.

To be sure that you adequately provide for your dependents, you should increase your life insurance as your salary increases. The ratio between your coverage amount and your salary decreases, as your salary gets higher. So if you begin with a policy providing a death benefit equal to ten times your salary, by the time you reach 50 years old and are earning twice as much money, the coverage amount will have decreased to only five times your salary.

And don’t think that once you turn 65 and your children are grown, you no longer need life insurance. Remember, most people live up to every penny they earn. As their income increases, they tend to increase their standard of living via expensive new homes or cars, so that at age 65, many of them could still conceivably be carrying mortgages or auto loans. In order for the surviving spouse to maintain their current lifestyle, the insured would have had to increase their coverage to keep pace with their spending.

There is also the issue of longevity. Today people are living into their eighties and beyond. If the insured dies at 65, the surviving spouse could live another twenty to thirty years, in which case they would need the death benefit proceeds to cover living expenses.

It is clear that there is a real need to have your life insurance keep pace with your salary. You should review your life insurance annually with your agent, Brian Gruss, to develop a plan to ensure your dependents will remain financially comfortable after your death.

Tags: Auto Loans, Children Education, Children S Education, Death Benefit, Dependents, Education Money, Financial Cushion, Going To College, Income Increases, Income Insurance, Interim, Life Insurance Coverage, Lifestyle, Mortgage, Mortgages, New Homes, Pace, Proceeds, Salary, Stay At Home