Why stay-at-home mums (and dads) need life insurance
We're pretty good at getting life cover for the breadwinner, but don't forget about full-time parents.
Let's imagine you're a full-time parent. Have you ever thought how your family would pay for childcare and running the home if you were no longer around? It's a rather depressing thought I know, but one you should consider nevertheless.
According to Legal & General's latest 'Value of a Mum' survey; the value of the work mums do around the home runs to a whopping £32,812 a year. This is the cost of replacing the domestic work and childcare that mums do.
It's easy to see why buying life insurance for the chief wage earner makes sense. After all, how would your family cope financially if the main source of income suddenly stopped? But many of us don't give a second thought to getting cover for a full-time parent, and almost half of all mums have no protection whatsoever.
It's a big mistake to rely on meagre State benefits to help you out financially in the event of a full-time parent's death. Some of you will be in the enviable position of being able to fall back on your extended family in troubled times, but this is by no means the norm.
So that means for most of you, life insurance is a must.
How much life cover do stay-at-home mums (and dads) need?
This is a tricky question to answer.
If you bought enough insurance to cover L&G's value of a mum every year until your youngest child left home (perhaps 20 years in total) this would mean a staggering £689,052 (20 x £32,812) worth of cover. And, that's before you even take inflation into account.
But I think that's a little excessive for the average family!
While it would be nice to employ someone to take care of all the domestic work around the home, I would argue this is more luxury than necessity if you want to keep your life insurance premiums down. (Of course, you may disagree!)
Instead, you could use the cost of taking care of your children in your absence as the basis for calculating how much life cover you really need, and over how long. For example, you may decide you'd like protection in place until your youngest child reaches 18. But, overall, it really depends on your own family's circumstances.
Once you've decided how much cover you need and for how many years, you can easily compare life insurance quotes here to help you find the most competitive policy.
Think about Family Income Benefit (FIB)
While life insurance policies pay out a lump sum during the term chosen, a Family Income Benefit policy can be used to provide a monthly or annual income instead. Again, you might decide you need cover until your youngest turns 18.
FIB has three key advantages:
Managing a large life insurance payout can be tricky. But a monthly or annual income should be easier for your family to handle.
Benefits can be index-linked so the amount of cover the policy provides steps up each year in line with inflation (rising prices). This is a very handy feature for keeping pace with increasing childcare costs.
And, best of all, FIB is actually cheaper than life insurance. Here's why:
How does FIB work?
Let's say you take out a life insurance policy with cover of £100,000 for 20 years. The amount of protection stays the same throughout, and no matter when a claim is made within the 20-year term, £100,000 will still be paid out.
But what happens if you buy FIB instead? This time the policy pays out an annual income of £5,000 over a 20-year term. If a claim was made in year 1 the total payout would be £100,000 - although your family would receive it in annual instalments of £5,000 over the next 20 years.
But if the claim was made half-way through the policy term in year 10, the total payment this time would only be £50,000 - this would be paid to your family in annual instalments of £5,000 for the remaining 10 years of the policy.
So, because the cover available under FIB decreases over time it's cheaper than life insurance where the protection amount always stays the same.
For this reason, I think FIB is an excellent way for a stay-at-home parent to protect their family and keep the cost of insurance down too.
Think about Critical Illness Cover or Income Protection Insurance
On a final note, full-time parents should also consider the impact on their family's financial well-being if they were to become ill or suffer an accident, and were no longer capable of looking after the children or running the home.
Policies such as Critical Illness Cover or Income Protection Insurance can be used to protect against this risk. (Note that Income Protection Insurance can still be used to cover a non-working parent who doesn't earn a salary).
You can find out more about these insurances here. This article is written with working people in mind, but the same principles apply.