How Do You Balance Life Insurance Coverage Between Parents?

The number one question most people have when they think about life insurance is “how much coverage do I need?”  

Everyone’s financial situation is different, but a straightforward online calculator can help you estimate realistic coverage needs. You want to make sure your people are financially protected, but also don’t want to spend more than you need to when there are other demands on your wallet. A good calculator will help you evaluate how much coverage you might need for different responsibilities (mortgage, kids’ education, elder care, living expenses etc).

Once you have figured out your inputs and gotten to an initial number, it’s good to think about how you currently divide financial responsibility and how much coverage each parent should carry to see if your individual coverage amounts should be increased or reduced.

It’s a common misconception that only the main breadwinner in a family needs life insurance.  Realistically, if you think about the value of all of the labor, logistics and caring the other parent also provides, it often approximates  a full time salary, even for “stay at home” parents.  If you want your family’s standard of living to stay the same, it’s worth insuring the second parent so your family is financially and emotionally secure if something happens.  

A strategy that has helped many of our customers is to sit down with their partner and go over how they pay for things currently, then adjust calculator inputs accordingly.  Here are a few examples:

Two full-time working parents

You are both generating household income.  At the highest level, you can look to replace the income you each generate or are expecting to produce over the term of your policy. If you want to go a level deeper, look at who covers which expenses (or where your individual income goes).  If your funds are combined in a joint account, consider who pays which bills to get an idea of who covers which costs. Perhaps one of you pays the mortgage and the other covers all other living expenses such as utilities, groceries, clothing, car repairs and more.  Or perhaps one of you subsidizes your children’s education and the other covers all other expenses. Think about what you each are responsible for so there’s no unnecessary overlap and then use that information to complete a life insurance calculator to estimate coverage.

If you each have life insurance through your workplace, make sure it is enough to cover your family’s financial needs.

One parent working full-time, the other not

If one parent is working full time, while the other runs the show on the home front, the working parent who is generating income will most likely have the larger policy.  That parent should make sure coverage will encompass all family debts, caretaking and education expenses. However, it’s important to make sure the non-working or working part-time parent is also insured for an amount that would help fund the costs of getting help to cover all of the responsibilities he or she currently oversees (think cook, babysitter, driver, cleaner, household manager, etc.).  When all the responsibility suddenly falls on one parent, it can be overwhelming. Anticipating support and providing the financial backing necessary in such situations can be extremely valuable. Having a financial safety net can provide a buffer that allows a parent to take time off or decrease his or her workload to spend more time with family during difficult times.

Single parents

In this case, you run the show. You know how critical it is to make sure all your family’s needs are taken care of. Consider any debts you have (e.g., mortgage, student loans, car loans), as well as child care costs, future education costs, and any caretaking costs for other family members that would need to be covered.  That way you can make sure your policy would sufficiently cover these responsibilities. Doing this now allows you to feel reassured that you’ve established a good financial scenario for your family.  Also consider consulting with an attorney who can make sure your will and/or trust have designated someone to make financial and caretaking decisions on your behalf, so that your family members will have what they need.  

Being thoughtful about how much coverage each person carries in your household can help ensure you have set your family up for financial stability.  It may also help you free up money that can be used for other purposes.

If you have questions or would like to chat with someone to figure out your best coverage options, at Ladder we’re always happy to help.

About us:

Ladder wants to help people live their best lives, so we built life insurance that is instant, simple and smart. We offer direct-to-consumer, fully underwritten, term life insurance online. We do not charge policy fees and we do not employ commissioned sales agents. You can apply for life insurance coverage in minutes and get an instant decision. You can also decrease your coverage online over time, with no fees or penalties, so you can adjust your coverage as your family’s life needs change.