You're probably aware that a parent who works outside the home
will most likely need life insurance to protect their loved ones if
they die. Stay-at-home parents, like breadwinners, require insurance
coverage. The following are nine of the reasons why.
1.
To make up for the value of their labor. Stay-at-home moms are
caregivers, tutors, cooks, housekeepers, chauffeurs, and so much more
365 days a year. And all of that work comes at a price: Stay-at-home
parents provide the equivalent of $162,581 to their households each
year, according to Salary.com. If the unthinkable happened, the
surviving partner would be responsible for a slew of extra costs that
the stay-at-home parent had previously borne. Term life insurance is a
quick and low-cost way to get this type of coverage for a set period of
time, such as 10 or 20 years—often until you pay off your mortgage or
your children have grown and moved out.
2. To
take into account any future income contributions. Many stay-at-home
parents return to work when their children reach a certain age. Life
insurance could help cover the difference between what their future
earnings would have contributed to the house and what they actually
contributed.
3. To pay off any debt. Student
loans, credit card debt, and informal loans from family members are all
examples of ways to owe money. Life insurance can help settle any debts
left behind so that they do not burden bereaved loved ones.
4.
To cover funeral expenses. Would you believe that the average funeral
costs between $7,000 and $10,000, according to parting.com? That may not
be enough to cover the funeral, headstone, and other expenses. Many
families want to pay tribute to a loved one's memory but cannot afford
to cover all of the costs. Fortunately, a life insurance payout can
assist in covering final expenses.
5. Leaving a
Trace If a stay-at-home spouse has a strong affinity for a place of
worship, alma mater, or another nonprofit organization, life insurance
proceeds can be used to make a significant charitable contribution.
6.
To boost savings. Permanent life insurance, which provides lifelong
protection as long as premiums are paid, may offer additional living
benefits such as the ability to accumulate cash value. This money can be
used for anything in the future, such as a home down payment or college
tuition. However, keep in mind that withdrawing or borrowing funds will
reduce your policy's cash value and death benefit if not repaid.
7.
To ensure insurance coverage. In an instant, your health can
deteriorate. When you buy a permanent life insurance policy when you are
young and healthy, you are guaranteed coverage for the rest of your
life. Then you won't have to be concerned if you later develop a health
problem that makes obtaining life insurance difficult, if not
impossible.
8. To benefit from tax-free advantages. Life insurance is one of the few tax-free ways to leave money to loved ones.
9.
To give loved ones peace of mind. It is difficult enough to lose a
parent or partner before their time, without having to worry about
unpaid debts, childcare costs, burial costs, and other expenses.
Life
insurance is, as you can see, just as important for stay-at-home
parents as it is for working parents. Make an appointment with a local
insurance specialist to discuss your options and obtain coverage that
fits your lifestyle and budget.
Who Can I Name as a Beneficiary on a Life Insurance Policy?
First
and foremost, congratulations on your decision to purchase life
insurance! You took an important step by safeguarding those you care
about.
Every life insurance policy requires you
to name a beneficiary. A life insurance beneficiary is the person or
people who receive the proceeds of your life insurance policy when you
pass away; it could also be a trust, charity, or your estate.
You
can also name multiple beneficiaries and specify how much of the payout
should go to each one, such as 50% to a spouse and 50% to an adult
child.
Typically, you will be asked to choose
between two types of beneficiaries: primary and secondary. The payout is
distributed to the secondary beneficiary if the primary beneficiary
dies (sometimes known as a "contingent beneficiary").
Taking Care of Children
One
of the most common reasons people purchase life insurance is to provide
for children who are left behind. Typically, this is accomplished by
designating the beneficiary as the surviving husband or partner who
cares for and raises the children. But what if you're widowed, or if you
and your partner both die at the same time?
To
begin, naming a minor as a beneficiary is not a good idea. This is due
to the fact that the law forbids life insurance payouts to anyone under
the age of majority, which varies by state and ranges from 18 to 21.
When a child is named, the case is transferred to probate court. A
guardian will be appointed by the court to oversee the child's
money/estate until the child reaches the age of majority.
Fortunately,
there are two options. The first step is to name an adult guardian. The
custodian should be someone on whom you can rely to spend money on
necessities such as housing, health care, and education until the child
reaches the age of majority. Any leftover money is then given to the
child, who can spend it however they see fit.
The
second option is to consult with an attorney about forming a trust. In
this case, the trust is the beneficiary, and a trustee is appointed to
manage and distribute the funds. The primary advantage of establishing a
trust over naming a custodian is that you have more control.
Even
if your children are adults, a trust allows you to specify how you want
the money distributed. (A word of caution: If you're creating a trust
for a special needs child, consult with an attorney first.) They can
help you create one that will not jeopardize your child's eligibility
for government benefits such as Medicaid or Supplemental Security
Income.)
Choosing a Charitable Organization
Do
you have a cause that you are passionate about? If this is the case,
you should consider making a charitable organization the beneficiary of
your life insurance policy.
There are a number
of approaches to this. They include making the charity the owner as well
as the beneficiary of a life insurance policy, adding a
charitable-giving rider to a life insurance policy, or collaborating
with a community foundation to determine the best way to distribute a
payout.
Recommendations at the End
Consider
naming your estate as a beneficiary with care. This can lead to the
time-consuming and costly legal process known as probate. A faster and
more efficient method is to designate specific individuals or groups as
beneficiaries.
1. Be specific. As
beneficiaries, instead of "my spouse" or "my children," provide their
names, addresses, and Social Security numbers. The insurance company
saves time because they no longer have to look for information.
2.
Include a contingent beneficiary in your will at all times. If you die
without a surviving beneficiary and leave life insurance behind, the
proceeds may be distributed to someone you never intended to benefit
from your policy. It may also be necessary to hire a court-appointed
administrator to get things back on track.
3. Choose
trustworthy custodians and trustees. Consider who you'd entrust your
child's financial well-being to if you weren't present. Your children
may adore their uncle or aunt, but is he or she financially responsible
and mature? If you are not, find someone who is.
4.
Conduct a regular review of your beneficiaries. Check on your
beneficiaries once a year and after major life events such as marriage,
divorce, childbirth, or death in the family.
5. State your desires. Inform your beneficiaries of your intentions and where they can find the insurance.
6.
Keep an eye out for unusual circumstances. Some circumstances, such as
when the policyholder and the insured are not the same person, may
result in a tax on the life insurance benefit. Likewise, if you live in a
community property state and do not name your spouse as a beneficiary,
things can become complicated. An insurance agent can advise you on this
and other life insurance issues.