There has been a persistent gender gap in life insurance—In the U.S. 56 percent of women have life insurance, which is 10 percent less than their male counterparts. However, this doesn't align with the current roles women take on in their family. Most children today are raised by two married parents who are both employed or a single working parent, and only a small number of children will grow up in families with a stay-at-home parent throughout their upbringing.
So why does this life insurance gap exist? Surely it is a product of the stubborn gender pay gap and other related systemic issues, such as the domestic work gap, the pink tax, the debt gap and more. While there is still major work to be done in creating an equal financial foundation, it’s clear that the value women add to their family is far greater than income.
Entering a new life stage is one of the biggest reasons people get a sense of urgency to purchase life insurance, and there's no better time to put a plan in place than when you're expecting a baby or you've just become a new mom. If you suddenly pass away, a life insurance policy will equip your family with the resources to replace the value of your labor and help pay for childcare, college tuition, etc. Generally speaking, it will most likely be the least expensive at this point in your life -- age and health class are the biggest factors when determining life insurance rates – the younger and healthier you are, the lower your rate will be.
Here are a few important factors to consider when choosing a life insurance policy that best fits the needs of you and your family:
- Your Family Role. We’re often under the impression that life insurance is mostly (or only) critical for the parent who makes the most money, but that misconception has put many families in an unfortunate place. Whether you’re the breadwinner, an equal contributor, a single mom or a stay-at-home parent, you have loved ones who depend on you for varying matters. Your contributions to the family, whether it be an income, household duties, childcare, or all of the above, require safeguarding.
For example, stay-at-home parents are indispensable to the family. In fact, it’s estimated that the average stay-at-home parent would earn an annual salary of $162,581 for everything they do, including things like childcare, financial planning, chores and more. So the question for stay-at-home parents is: if you were to suddenly pass away, would your spouse be able to cover the costs of everything you do (e.g. hire a nanny)? If the answer is no, you should have a life insurance policy.
Additionally, most households today rely on two incomes. If you’re an equal contributor and split rent or a mortgage (plus other living expenses and responsibilities) down the middle, then life insurance is critical to ensure your family can make ends meet. And in most cases, women still carry the brunt of unpaid work within the home, so although they’re working just as much as their partners, there is much more value they add that needs protection.
- Your Coverage Type. There are two main types of life insurance: whole and term. As noted in our Definitive Guide to Life Insurance, “Whole life is permanent insurance that remains in effect for the entire life of the insured party as long as the monthly premium is paid. Whole life insurance also includes a savings element commonly referred to as cash value. For this reason, premiums for whole life insurance are usually more costly than term life.”
Term life insurance is the most practical and affordable coverage option for most families. Term policies provide protection for a predetermined time frame at a fixed monthly cost (it can range from five years to 10, 20, 30 years, or more). Because a term policy provides protection only while you need it most (i.e. while raising kids until they’re self-sufficient adults), you’ll save money long-term.
If your goal is to ensure protection for the time you have loved ones dependent on you, term life will be sufficient and save you a lot of cash. If you want to consider a whole life policy, it's important to understand that roughly 30 percent of whole life insurance policies are surrendered within the first 3 years, and 45 percent are surrendered within the first 10 years (meaning you lose your coverage and everything else you invested). This is because whole/permanent policies have a cash value component, where part of the higher premium costs fund the cash value. In most cases, these higher costs and the fees associated quickly add up, so policies lapse for many people. You are also paying more for the underlying insurance, which you might not need later on in life.
- Your Coverage Amount. Everyone’s situation is unique, so the coverage amount that’s right for your coworker or best friend may not be right for you.
Thankfully, calculating how much life insurance you should buy is fairly straightforward. Experts recommend simply multiplying your current salary by 10 to 12. So if you make $50K/year, you would want to apply for $500K-$600K in coverage.
Alternatively, you could add up all of your current assets, debts, and future expenses like your child’s college tuition to get a sense of everything you’d need to cover. Still not sure? Try our coverage calculator.
As your child grows, so will the expenses they bring. It can cost up to $233k to raise a child to the age of 17, not including the cost of college tuition and living expenses. It’s becoming more common for adult children to live with their parents into their early 20s as they establish themselves. Their financial needs (student loans, rent, and living expenses) should be taken into consideration when you’re thinking about how much coverage you need.
Let’s be real, being a new mom is overwhelming. From the new routine—sleep, feed, repeat—to balancing all the other important chores and demands of pre-baby life. Something that shouldn’t be hard or stressful is ensuring that the family is set up for a healthy financial future. Owning a life insurance policy can protect your family during the years they need you most.