Whether you love it or hate it, everyone should still consider purchasing life insurance. Unfortunately, when it comes to this insurance, coverage for non-working spouses is often overlooked, especially if the household is in a lower income bracket. But the economic replacement cost of a non-working spouse should never be discounted.
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You've probably read the articles or heard on TV the outlandish figures placed on the value of homemaker's work. Some estimates say a homemaker is worth $500,000 or more per year because of the endless list of tasks and burdens that fill a stay-at-home parent's day. However, MSN.com puts these homemakers' actual economic cost at a way lesser amount of $30,000 ("What's A Homemaker Worth? The Shocking Truth", 2008). In this article, we take a stance between these two numbers as we discuss what the economic replacement value would be to cover a homemaker's often priceless work for insurance estimates. (To find out which insurance policies you should buy, check out Five Insurance Policies Everyone Should Have and Fifteen Insurance Policies You Don't Need.)
Hidden Value of a Homemaker's Duties
When the non-working spouse of a single-income family with small children is lost, the cost of replacing the duties that he or she performed can be substantial, particularly if the family has no friends or relatives who can provide surrogate care or help of any kind. Babycenter.com estimates the cost of full-time daycare can range anywhere from $3,000 to $15,000 per year per child, depending on the location at which the care is provided, as well as the age and number of children. Of course, if competent daycare is not available, nannies can cost even more. A family with children ages two, three and five that is bereft of the homemaker could easily be forced to spend somewhere between $10,000 and $30,000 a year on daycare expenses alone for at least the first year or two, with expenses starting to decline once the children reach school age. But this kind of financial burden on an uninsured low-income - or even middle-income - family can be devastating.
While meals could be included in the cost of many daycare facilities, there may still be a need for meals outside the daycare schedule that the remaining parent cannot provide on a regular basis. If the remaining parent must work evenings or overtime in order to make ends meet, then supper must be also prepared by a third party (if the children are too young to do it themselves). The cost for this can easily run up to $100 per week (and $5,000 per year) or more, depending on the quality of the meals that are provided.
Another expense to consider is housecleaning, which can cost anywhere from $50 to $150 per cleaning. If the house must be cleaned twice a month, that comes to another $1,200-$3,600 per year. When you look at these costs, it may be prudent to hire a full-time nanny who can cook, clean and provide child care if it is cheaper than the aggregate cost of each service provided separately. The U.S. Bureau of Labor places the costs of a full-time nanny at anywhere from $15,900 to $29,280.
Counseling services for family members should also be taken into account. Not only is the homemaker the one cooking, cleaning and babysitting – they are also the heart of the home. Losing this valuable member of the home could cause repercussions emotionally that the remaining spouse may not be able to handle on his or her own. The cost of paying for a counselor once the homemaker passes away may be in the tens of thousands of dollars - which confirms that love truly is priceless.
The combined cost of all of these services could obviously ruin the average low- or middle-income family with no life insurance coverage in this area. There are essentially three possible solutions for families that suffer the loss of a non-working spouse:
- Pay the expenses out of pocket - Obviously, this solution is only available for wealthy or upper-class families.
- Remarriage - While this may well be the best possible option, it is dangerous to rely on this course of action as a solution. Even if the surviving parent does remarry, it is possible that the new spouse may have a full-time job that he or she is unwilling to give up. Even though the income from that job could theoretically be used to pay for the necessary expenses, the new spouse may not be amenable to this idea.
- Life Insurance - This is likely the most reliable and safest option of the three. The amount of coverage to be purchased should be determined in exactly the same way as for the breadwinner: through a needs-based cost-replacement analysis. The family should compute the approximate costs that will be incurred from the loss of the non-working spouse and purchase enough coverage to offset these costs. For example, if the cost of counseling, childcare and other services come to $45,000 per year for the first three years and decline thereafter, then at least $135,000 of coverage (and probably more) will likely be necessary in order to adequately cover all necessary expenses. (To learn more, see How Much Life Insurance Should You Carry?)
The Bottom Line
Although it is not likely that as much insurance will be required for the non-working spouse as for the breadwinner, the loss of the homemaker is just as difficult to deal with in many respects. Many needs must then be met and paid for in order for the family to continue to function. Proper life insurance coverage for homemakers should therefore be an integral part of any financial plan.