Life Insurance for a Non-working Spouse?
By Kristi Vaughan
Life insurance is designed to replace income lost when a wage earner dies. So should a non-working spouse, who has no wages, have life insurance? And, if so, how much?
Need for life insurance
The need for life insurance is determined by the financial impact that the insured person's death would have on the beneficiaries of the life insurance policy. If there is no financial impact, there probably is no need for life insurance unless survivors want to cover funeral and estate costs with the insurance.
On the other hand, if the non-wage earner is the primary caregiver for children, or even an adult dependent, his or her death could have financial repercussions if survivors now need to hire someone to do that work.
How much insurance?
As always, the amount of life insurance needed is determined by its purpose. If the purpose is to pay the wages of a housekeeper or nanny, you'll need to estimate those annual costs and the number of years the need will exist. If you are counting on the currently non-working spouse to return to work as the children get older, you may additionally want to consider the potential for income that the spouse would have made once the children no longer needed full-time care. A life insurance needs calculator such as that found on the Life and Health Insurance Foundation for Education website can help you determine a benefit amount.
What type of insurance?
There are two main types of life insurance: term and permanent. Term insurance is bought for a specific time period and tends to be less expensive. This can be good for budget-conscious parents and to cover expected expenses such as college tuition or a mortgage. One caution on term insurance: rates likely will rise upon renewal and, depending on age and health, you may no longer be eligible for insurance.
Permanent insurance is more costly but as long as premiums are paid, you're usually covered for life even if your health changes. Permanent policies build up a "cash value" that you can borrow against, use to pay premiums or even buy an annuity for retirement years. Both term and permanent policies can be used in estate planning.
Where can I get life insurance?
In addition to the common sources of life insurance - life insurance companies and their agents and, in some states, savings banks - ask your employer if dependent, or spousal, life insurance is an available option. If so, you could benefit from the lower rates usually given to group policies.