Life insurance is a funding source for the children's needs after you die. It is not a plan nor does it, by itself, specify that they don't get to blow it all in Disneyland after the funeral. You'll need a lawyer to set that up for you, not a life insurance salesman.
And we've deduced that our kids can be properly taken care of while they are still kids, even if one (or both) of us passes away. Unless I plan on taking care of all of their needs until age 30+, I don't need life insurance to make sure they're taken care of until 30+.
In short, one of us dies, kids can still have a decent lifestyle. Both of us passes on, they'll still be taken care of (obviously there'd be drastic changes in their lifestyle, but that would have nothing to do with lack of money).
To throw out some numbers...at one point my wife figured we'd get $3,800/mo or so if she died. I figured our expenses for a family of four, we need $18,000 to live a comfortable (for us) lifestyle (includes utilities, food, gas, maintenance on one vehicle, and one vacation a year along the lines of 3-4 days of Disney and a 7-night cruise). $12,000 would still fund a decent lifestyle (going out to eat would be cut from 2-3 times a week to twice a month, vacation would be drastically cut back, etc.).
If something happened to her, we'd be a family of three living on 2.5 times the income that's needed for our current family of four to live on. So...we don't need insurance to cover her lost income. Heck, we'd still have plenty left over to put in retirement, college funds, etc.
If something happens to ME...her income wouldn't necessarily be affected. She would probably need to pay for childcare, but her take-home would still be more than enough to take care of the necessary bills, the unnecessary bills, retirement, college funds, etc.
If something happens to BOTH of us, then our kids' lifestyle would obviously change (for one thing, I don't think they'd be traveling as much). The person now taking care of them won't get as much in Social Security benefits as say, I would (because they wouldn't get anything for watching the kids...but the kids would get something, same difference really). Their living expenses shouldn't rise dramatically (they could use the same house they're currently in...or move in ours...either way they have a house and could sell the other). The additional money could be used to help the kids out with college and what-not. And really...if we can last where we're at for another few years or so...college may not be a big concern (cost-wise) for our kids.
Basically, we've crunched the numbers, looked at what would actually happen in each scenario, and are comfortable that those who are left behind won't suffer undue hardship due to a parent (or parents) dying early.
I think it's good for people to look at all the scenarios and make sure their family will still be taken care of. In the OP's case, he realizes that even though his wife is not bringing in income so to speak, she does play an important part in the family's financial well-being. If something were to happen to her, his income may not be enough to support their standard of living, so she may want to consider having a life insurance policy of her own. But in the same vein, I can't advocate having a life insurance policy just because. If you need it, get it. If you don't, then don't.