The everyday supporting services you perform for your family may be just as valuable as income.
Although you may not get paid to take the kids to school, clean the dishes, or run the dishwasher, the daily support you provide to your family can feel like a full time job. It can be costly to hire someone to take over these tasks in the case of your death. This is where life insurance comes in handy.
When calculating how much life insurance you need, you may not think to include these everyday tasks. Because it is important to have a replacement income in the event of death, the breadwinner’s salary is usually at the forefront when estimating family coverage. Your loved ones could be left with unanticipated costs if you underestimate the value of the support services you provide.
Unpaid support has a negative impact
Mary Beth Storjohann is a certified financial planner and founder at Workable Wealth. She says that families often neglect life insurance coverage for the spouse who stays home.
Jessica Lepore, founder and CEO of Surevested (an artificial intelligence-powered life insurance agency), says that the value of the services a stay-at home parent offers often exceeds the income of the breadwinner. These tasks could include cleaning, child care, maintenance, budgeting, and bookkeeping.
Lepore states that “so much will be needed to compensate for the missing person” even if they don’t have a traditional job.
Knowing how to accurately value your contribution, whether you’re a stay-at-home parent or have a part-time job, can help you create a robust life insurance plan for your family.
How to accurately assess the financial impact
Storjohann suggests that the first step to valuing your coverage is asking your partner how their lives would be if you weren’t there. What would your partner do with their day-to-day tasks and daily activities? What would they have to do? Are funds required to be taken from savings? These questions can help you to determine the financial impact of your absence on your family.
Once you have identified the services that your family would require to be replaced, you can calculate the budget needed to pay for each.
“What would it take to hire outside help to do those things if your job was over?” Storjohann asks. These costs can vary greatly depending on where you live. According to 2020 data from Child Care Aware of America (a research and advocacy organization), center-based childcare can be twice as expensive in California than in Alabama.
Don’t forget debts you may owe. Lepore states that mortgages can be a major trigger for life insurance. If you are a cosigner or coborrower for a mortgage, and you help with the payments, then the other signatory would have to pay the entire amount if you were to die. You can help your co-signer or co-borrower make the mortgage payments by having enough life insurance. If you’re the sole owner of the property, the death benefit can help your life insurance beneficiaries pay off the mortgage and keep the house.
Once you have calculated the financial impact that your absence will have on your family, consider how long it will take to cover the costs. While child care might be unnecessary after a few decades, other costs could last longer.
It is a smart idea to look at your financial situation after major life events such as marriage, children, or divorce. You might want to change your coverage if your children are no longer dependent on child care.
If you have any questions, we are here to help
Calculating your financial impact on others isn’t easy, especially if you don’t know how life insurance works or get intimidated by financial topics. Storjohann states that people are now talking more about money and that there are many places to learn.
You can have life insurance that will last for the rest of your lives. It’s important to feel confident about making coverage decisions. Talk to an independent financial advisor or agent about your policy options if you are unsure.
Lepore states, “It is really important to realize the value of someone’s life and not just their salary.” “What they bring to a table is so much greater than that.”
