How Much Life Insurance Should Stay-at-Home Parents Buy? Here's What Dave Ramsey Recommends

Stay-at-home parents should read this before buying insurance coverage.

Buying life insurance is important so loved ones aren't left without money in the event of an untimely death. But there's a wide range of choices when it comes to death benefits, so it can be hard to figure out exactly how much money beneficiaries will need.

Most experts who provide recommendations for how much life insurance to buy focus on income. In fact, the common advice is to buy enough coverage to replace between 10 and 12 times what the policyholder earns. But, those who earn an income are not the only ones who should buy a policy. Stay-at-home parents should purchase protection as well.

The good news is that finance expert Dave Ramsey has some tips to help those who stay at home decide how much coverage to purchase.

How much coverage do stay-at-home parents need?

Ramsey was very specific about the recommended size of the death benefit for parents who do not work outside of the home.

"For stay-at-home parents, I recommend between $250,000 -- $400,000 worth of term life insurance coverage," Ramsey said. Ramsey believes term life is appropriate for both stay-at-home parents and for working individuals, rather than whole life coverage.

"With term life insurance, you can get the exact same amount of coverage for a fraction of the price of a whole life insurance policy," he explained. While whole life policies remain in effect indefinitely, term life policies end after a set period of time, such as 20 years. But most people do not need coverage forever. "You'll be covered with your investments after 20 years, and you won't even need life insurance anymore," Ramsey said.

Now, it may seem odd to think that a stay-at-home parent needs a policy at all since those who don't work outside of the home do not bring income in. But their surviving loved ones could still face financial hardship after their death if there's not sufficient life insurance coverage in place. "They may not make the income of a 9 to 5 job, but they bring a HUGE value to their household," Ramsey explained. "To replace even some of that would not be cheap."

Life insurance purchased by a stay-at-home parent could cover costs such as daycare or a nanny, or could enable the parent who is currently working to cut back on their hours to be home with the kids more often.

How to purchase coverage

Stay-at-home parents should consider how long their loved ones will rely on their services in order to determine a coverage term. And they'll need to decide how large their death benefit should be. Ramsey's recommendation is a good starting point, although more coverage may be needed if the working parent would want to change to staying home in the event of an untimely death.

After deciding on the amount of coverage, the next step is to shop around and get quotes from several insurers and then submit an application to the one offering the most coverage for the best rate. The insurer may require a medical exam, and will ask health questions as part of the application process. Once that's done, coverage can be put in place so the family will have the financial protection they need.