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income replacement

Life insurance for stay at home moms

by Glenn on November 29, 2007

This is a question that comes up frequently – how much life insurance should a stay at home mom buy?

Well, there’s no firm answer; or more appropriately there’s no answer that can be easily calculated. However we can make some educated estimates as to how much life insurance you should be considering. In a situation like this I prefer to think in ‘ranges’ with an upper and lower amount selected. Then you can choose where in that range you feel most comfortable.

The first thing to consider (and this is true for anyone purchasing life insurance) is what exactly is lost. Once the loss is determined we can start to estimate how much life insurance is needed to cover that loss.

With stay at home moms we don’t neccessarily lose any direct income. What is lost however is the value of the work done by stay at home moms. And that is something we can use to start to estimate how much life insurance you need. To replace the work done by a stay at home mom, you’re typically going to be looking at least at daycare, and quite possibly a homemaker. Now lets say we need to pay $25,000 a year for a homemaker (and that’s likely on the low side). Using a how much life insurance do I need calculator I can see that replacing $25K for 25 years and assuming 3% inflation and 5% interest, that it takes just over $500,000 of life insurance to produce that income. And that’s with nothing extra or left over.

On the lower end of the scale that same calculator shows that if the same assumptions are made but over 15 years then $328,000 of life insurance is needed to produce that income.

So now we’ve got a range, based on some assumptions. In this case you should be looking at between $325000 and $500000 of life insurance for a stay at home mom. And that fits in with what I typically see – most stay at home moms that I work with are looking at between $250,000 and $500,000 of life insurance.

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