Parenting is a challenging but rewarding journey for anyone who embarks on the adventure. And when you are a single parent, this journey can be even more challenging. This is especially true when it comes to making financial decisions.
Single parents often have unique questions when it comes to life insurance. Let’s look at some of the most common questions counselors hear from single parents.
1. Why do you need life insurance as a single parent?
While insurance is beneficial for all families, single-parent families need to strongly consider life insurance as part of their financial strategy.
It may sound obvious, but it is very important for single parents to accept the absence of a backup parent. Unlike a two-parent household, if a single parent dies, there may not be a clear choice of who will help pay the bills or care for the children. Life insurance can provide a financial safety net that might not otherwise be there to help answer some tough questions.
Despite the importance of life insurance, single-parent families are less likely to have life insurance. a study found that 69% of single parents with children still living at home had no life insurance. You can compare this to the 45% of double-parent households that do not have active life insurance. If you’re a single parent, now is the time to put together a plan to make sure you know your family is covered correctly.
2. What can life insurance help cover?
Life insurance can help you pay for the expenses that will continue for your children and dependents even after you die. These expenses may include house payments (rent or mortgage), loans, current and future education needs, end-of-life costs, child living expenses, childcare, etc.
Life insurance is an amount that you can give to your loved ones to help them live their lives, and it is generally tax-free. If you want to read more, check out this article with more details on what life insurance may cover.
3. How much life insurance should you have as a single parent?
The first step in determining how much life insurance you need as a single parent is to consider your lifestyle, obligations and future care and education of the children. In addition to the items discussed in the previous question on what life insurance can cover, add any unique or personal financial needs your family may have.
Next, to help you determine your needs, we suggest using a life insurance calculator like this one. By answering a few key questions, you can get an idea of how much money it would cost your family if you pass.
Finally, you’ll want to speak with a life insurance agent to help you find the best policy and price for your needs.
4. How do you choose a life insurance beneficiary when you are a single parent?
Emergency and end-of-life planning is a necessity for all single parents. It is important for your friends and family to know what happens to your dependents in the event of your death. Therefore, even if the conversation isn’t fun, you’ll need to include life insurance in your end-of-life planning discussions.
Typically, a parent will name their spouse or the other parent(s) of their child(ren) as the beneficiary (the person who receives the death benefit cash payment). However, if the other parent isn’t in the picture, you’ll first need to decide who is going to care for your kids if you pass away.
So secondly, is this the same person you would trust to get money to take care of your dependents? They don’t have to be the same person. If you have a trusted person or professional whom you want to manage your dependent’s assets, that person may be separate from the primary caregiver. You have to think about how you want to financially care for your children without you. We recommend talking to your family and any trusted financial or estate planners to solidify your plan.
Whatever you do, don’t name your child as a beneficiary – the law prohibits anyone from receiving life insurance payments if they are not the age of majority (which can be 18 or 21, depending on your state). Are. Click here for more information on naming beneficiaries.
5. What type of life insurance should a single parent have?
The world of life insurance these days is wide and varied, but here are some standard options to get you started on finding the best policy for you as a single parent.
term life insurance
If funds are limited or cash flow is tight, as can often be the case for single parents, then term insurance is a great option. Term insurance provides cash payouts to your beneficiaries if you die during the term. In exchange for the death benefit, you pay a monthly premium to keep the policy active. With a term policy, if you stop paying the premiums, the policy will lapse and the benefits will be gone. This is temporary coverage for as long as you need it or can pay for it.
A single parent can usually get premium payments on a term policy in a budget that they can afford. Also note that with any insurance policy, you must pass underwriting and set your price in order to issue the policy.
permanent life insurance
Next, there are permanent life insurance policies. These often come with higher cost per month premiums for the same death benefit as a similarly sized term policy. However, a permanent insurance policy will accumulate cash value in addition to the death benefit.
The cash value inside the policy can be used or borrowed after a certain amount of time. When you borrow money from a permanent insurance policy, you are using the cash value as collateral and the borrowing rates are relatively low.
If the idea of a more permanent policy sounds appealing, but you are concerned about having the cash to pay the premiums each month, then a universal life insurance policy may be more your style.
As a single parent with one income, flexibility is key. With a universal life policy, you can make more flexible payment amounts on the policy as needed. If you’re considering a universal policy, it’s a good idea to work with an insurance agent to make sure you set up a policy that best suits your needs and situation.
Single parenting is a daunting task, but having the safety net of life insurance for your kids can take some of the stress off. If you haven’t already, contact a trusted insurance professional to help you get started to secure your peace of mind.