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Life insurance for stay at home mothers/parents (Canada)

Wondering how much life insurance a stay at home mom needs? (Equally applicable to any stay at home parent).

I’m going to introduce two distinct ways to rationally determine how much life insurance you may need in that situation.

First, we’re going to base this on our income replacement calculator. That calculator determines the amount of life insurance you need to replace your income, over a time period. Works well for those who generate an explicit income. But as a stay at home parent, you don’t have an external income. So now what?

The answer is to treat estimate your ‘income’ as the monetary replacement value of the services that would need to be replaced upon your death. There’s no right number here, it’s based on your best guess and assumptions.

Say you decide that to replace your homecare and child rearing work with someone else, and that would cost you $20,000/year. Then you can use the calculator linked above and run the calculation using 100% of $20,000. You’re sort of using your ‘value’ to the home as your income.

I’ve run these numbers repeatedly through the years and using common assumptions you’ll typically end up at $250,000-$500,000. Numbers in this range would be reasonable based on the above assumptions.

The second way to determine your amount of coverage is again based on an assumption – the assumption that one person’s financial replacement value is the same as the other’s in a partnership (you’re both worth the same). Or more specifically, that one person is not worth ‘less’. Using those assumptions you can throw out the above calculator and simply look at the same amount of coverage as your partner.

Both ways are equally valid. Just decide what assumptions suite you best.

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