Life Insurance for the At-Home

Eric asks what Dave's take is on life insurance for a stay-at-home spouse and children. Dave explains how much he believes Eric should have.

QUESTION: Eric in Idaho asks what Dave’s take is on life insurance for a stay-at-home spouse and children. Dave explains how much he believes Eric should have.

ANSWER: I do believe you should have life insurance on a stay-at-home spouse in the range of $250,000 to $400,000. The wealthier your family is, the further up in that range you should go. The less wealthy you are, the further down you should go.

Basically, if something happened to mom, you’d have to hire Mary Poppins to do all the things she does. She brings economic value to the home place—everything from maid service to nannying to carting people around to tutoring to barber to chef. In order for you to continue to earn an income, someone would have to care for your children and your household.

Mom brings anywhere from a $25,000 to a $75,000 annual value to the household, economically speaking. That’s what it would take to replace the things that she does; I’m not saying she’s worth that. I don’t mean that at all, so don’t misunderstand me. She’s worth a lot more than that.

On children, if you have a little bit of money in investments or have a little bit of an emergency fund of three to six months of expenses, I would carry no life insurance on children. The only reason you would need life insurance on children is, Heaven forbid, to pay for final expenses. It’s what insurance people call burial costs.

If you have no money, you may want to get a $15,000 rider for each of your children for 50 or 60 bucks a year as a rider on your term policy or your wife’s policy. That’s what my wife and I did for years.

But as the kids got older and as we had some money in investments and things that would cover a burial, we didn’t even buy the rider anymore. With children, you’re not trying to replace their economic value because they don’t bring economic value. Economically, they are a liability. That means they cost money—they don’t make money. I’m not putting children down, so don’t hate me.

If they are sick and uninsurable later in life and you want to grandfather them in to some policy, that happens almost never to the point that it’s not worth buying insurance to cover. The most likely of the things on that, percentage-wise, would be juvenile diabetes. Even diabetes doesn’t make you uninsurable for life; it just makes it very expensive.

But it’s not worth it to offset that. That pitch usually comes from the life insurance person who is trying to sell something.