Parenthood is a challenging but rewarding journey for almost anyone who embarks on the adventure. And the journey can be even more challenging if you’re a single parent. This is especially true when it comes to 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 single parents need life insurance?
While insurance is beneficial for all households, single parents need to give life insurance much consideration as part of their financial strategy.
It may sound obvious, but acknowledging the absence of a surrogate parent is very important for single parents. Unlike in a two-parent household, when the single parent dies, there may not be a clear next choice of who should pay the bills or take care of the children. Life insurance can provide a financial safety net that might not otherwise be in place to help answer some tough questions.
Despite the importance of life insurance, single parents are less likely to have life insurance. One study found that 69% of single parents with children living at home did not have life insurance. You can compare this to the 45% of two-parent households that do not have active life insurance. If you’re a single parent, it’s time to create a plan to ensure your family is properly covered.
2. What things can life insurance cover?
Life insurance can help you cover the costs your children and loved ones will incur after you die. These expenses can include house payments (rent or mortgage), debt, current and future educational needs, end-of-life expenses, child living expenses, child care, etc.
Life insurance is an amount of money that you can give to loved ones to help them get on with their lives, and it’s generally tax-free. If you want to read more, read this article for more details on what life insurance can cover.
3. How high should the life insurance be as a single parent?
Considering your lifestyle, your obligations, and the future care and education of your children is the first step in determining how much life insurance you need as a single parent. In addition to what we discussed in the previous question about what life insurance can cover, add any unique or personal financial needs of your family.
Next, we recommend you use a life insurance calculator like this one to further determine your needs. By answering a few key questions, you can get a rough idea of how much money it would take to support your family if you pass.
Ultimately, you want to speak to a life insurance agent to help you find the best policy and price for your needs.
4. How do you choose a life insurance recipient if you are a single parent?
Emergency and end-of-life planning is a necessity for all single parents. It is important that your friends and family know what will happen to your loved ones if you die. Even if the conversation isn’t fun, you need to add life insurance to your end-of-life plan conversations.
Typically, a parent would designate their spouse or the other parent of their child(ren) as the beneficiary (person receiving the cash payment of the death benefit). However, if there is no other parent in the picture, if you pass, you must first decide who will take care of your children.
Second, is this the same person you trust to receive the money to care for your loved one? They don’t have to be the same person. If you have a confidant or professional to administer your dependent’s estate, that person may be separate from the primary caregiver. You need to think about how you’re going to financially support your children without you. We encourage you to talk to your family and trusted financial or estate planners to flesh out your plan.
Whatever you do, don’t name your child as a beneficiary — the law prohibits anyone from receiving a life insurance payout unless they’re of legal age (which could be 18 or 21, depending on the state). More information on designating beneficiaries can be found here.
5. What kind of life insurance should a single parent have?
The world of life insurance is wide and varied these days, but here are some standard options to get you started in finding the policy that’s best for you as a single parent.
term life insurance
When funds are limited or cash flow tight, as can often be the case for a single parent, then term life insurance is a good option. Term life insurance offers your beneficiaries a cash payment if they die during the term. In exchange for the death benefit, you pay a monthly premium to keep the policy active. If you stop paying the premium for term life insurance, the policy ends and the benefit is no longer available. It is temporary coverage for as long as you need it or can afford to pay for it.
A single parent can usually find a premium payment for a term policy within a budget they can afford. Also note that any insurance policy requires you to pass an underwriting in order to issue the policy and have your price determined.
Permanent Life Insurance
Next there is permanent life insurance. These often come with a higher premium per month for a similar death benefit than a term life insurance policy of the same size. However, with a permanent insurance policy, a cash value is accumulated in addition to the death benefit.
The cash value in the policy can be used or encumbered after a certain period of time. When you borrow money from a perpetual insurance policy, you’re using cash value as collateral, and borrowing rates are usually relatively low.
If the idea of a more permanent policy sounds enticing, but you’re concerned about having the cash on hand to pay premiums each month, then universal life insurance might be more your style.
As a single income parent, flexibility is key. With a Universal Life policy, you can set more flexible policy payment amounts if needed. If you’re considering a universal policy, it’s a good idea to work with an insurance agent to ensure you create a policy that best suits your needs and situation.
Single parents have a challenging job, but the safety net of life insurance for your kids can ease some of the stress. If you haven’t already, contact a trusted insurance professional to help you start securing your peace of mind.