When the unthinkable happens and a family faces the loss of the primary earner, a life insurance policy can help surviving family members manage their financial obligations. The funds can cover everything from funeral costs to paying off a mortgage or other debts, and having a life insurance policy gives everyone greater peace of mind.

However, many families mistakenly believe that when only one spouse works, one life insurance policy is adequate. They believe that if Mum or Dad stays home with the kids and doesn’t earn an income, there’s no income to replace in the event of an untimely death, and a life insurance policy on the non-working spouse is a waste of money.

Nothing could be further from the truth. In fact, it’s important to cover every member of the family, including non-working adults and children. While the policy value may not be as high as that of the primary-income provider, even a small policy can help cover unforeseen expenses.

The Value of a Stay-at-Home Parent

Multiple studies have indicated that stay-at-home parents are economically undervalued. Some studies have shown that if a stay-at-home parent were to receive a paycheck for all he or she does, such as cook, clean, care for children and manage finances, the salary would be well into six figures. Now consider what would happen to your family if your primary caregiver were to pass away.

If a death occurs after a serious illness there may be medical bills to pay, and funeral and burial expenses can cost thousands of dollars. And while the surviving spouse may have some assistance in caring for the home and children, chances are he or she will need to hire some extra help to manage everything. These expenses are costly — but a life insurance policy could ease some of the financial burden, allowing the family to focus on their emotional healing and getting used to life without a spouse or parent.

Children Need Cover, Too

While the loss of a child is unfathomable, the reality is that tragedies do occur. If a child is seriously ill, a life insurance policy can help cover some of the costs associated with caring for a sick child, and in some cases, allow for a child to receive expensive medical treatments that might otherwise be out of reach.

Purchasing even a small policy on your children offers the peace of mind that in the event something goes wrong, parents will not have to deal with serious financial hardship in addition to the emotional issues that come with the loss of a child.

How Much Insurance to Buy

Determining exactly how much life insurance to purchase on a non-working spouse or child depends on a number of factors, including your budget and how much cover you need.

When taking out a policy on a spouse who does not work, consider how much it would cost to pay someone else to perform the same tasks that he or she does, particularly child care. With the average annual cost for full-time child care or school more than five figures, the surviving spouse needs a policy that covers that expense for several years. Other expenses to consider include housekeeping services, possible medical expenses, including mental health services for the family, and funeral and burial costs. An experienced insurance agent can help you calculate exactly how much cover to purchase.

No one likes to think about the potential loss of a loved one, especially a spouse or child. However, understanding your risks and preparing to manage the financial aspects of an unexpected death can remove at least one of the stresses caused by the loss of a loved one.

About the Author: Insurance expert Paula Walker writes about insurance and estate planning for several publications. She often recommends Suncorp to her clients seeking to purchase life insurance policies.