It’s common for single moms or dads to wonder about what would happen to their children if they were to suddenly pass away. Who would provide for the kids’ needs? How can you ensure that your children can still have the life they deserve, even if you’re not there to take care of them?
A life insurance policy is one solution to your family’s future financial worries. As a single parent and sole breadwinner of your household, getting coverage should be your top priority.
In this guide, we’ll discuss all you need to know about life insurance for single parents. We’ll explain why you need to insure yourself, how to calculate the ideal amount of coverage, as well as tips on choosing the right beneficiary for your policy.
Why Single Parents Need Life Insurance
In two-parent households, one partner can still provide for their young children if the other passes away. However, solo parents are more likely to be the sole provider for their families. If they were to die suddenly, the child may be left with no one to fulfill their financial needs.
Even if you have a partner, you have no way of knowing what would happen in the future. Things may fall through with partners or they may pass away suddenly, leaving you the only breadwinner in the family.
On their own or partnered, single parents need life insurance. A policy can protect your children from a life of financial instability and hardship, even long after you’re gone.
Buying a policy early in life – ideally when you’re around 25 or 30 years old – can provide you with peace of mind as well as financial protection. You can rest easy knowing that your loved ones are always protected, no matter what happens to you.
Another added advantage of getting insured early is that you’re likely to get the best life insurance prices when you’re young and healthy. Your insurance rates as a healthy 30-year old will likely be much lower compared to your rates as a 50-year old, especially if you develop a medical condition later in life.
Determining Your Insurance Coverage Amount
One of the most important considerations when getting insured is the coverage amount you need. While it may be tempting to set a high death benefit amount, there is such a thing as too much life insurance.
Setting your coverage amount too high may cause your premiums to be prohibitively expensive. On the other hand, you may leave your kid in a financial bind if you set your death benefit too low.
Your life insurance policy should cover your debts – like credit cards, mortgage payments, and student loans – so your kids won’t be responsible for them after you pass. The policy should also be able to cover their expenses until they become financially independent.
A good method to calculate how much coverage you need is to look at your current finances. Take into account your outstanding debts and the cost of your family’s daily living. You should also think about your kids’ future costs like college tuition and medical expenses. To simplify these calculations, most experts recommend that you set your coverage amount to be 10-15 times your annual income.
Single Parent Life Insurance Options
In this section, we’ll discuss the two main types of life insurance options that can help you protect your kids.
Term Life Insurance
Term life insurance provides coverage for a certain amount of time, typically between 10 and 30 years. If you die at any point during the insurance life, your death benefit will be paid out. However, you’ll lose this coverage once this term is over.
Due to its cheaper premiums, a term policy is a great option for budget-minded families. This type of policy also provides you flexibility – when your term ends, you can either renew it for another term or convert it into a whole life policy.
Generally, term life policies are best for people who have time-sensitive debts such as a mortgage or student loans. This policy also gives your family enough protection until your children are old enough to go to college and become financially independent.
Whole Life Insurance
Whole life insurance, also known as permanent life insurance, is a little more complicated than term life. At its core, it’s a policy that protects you until you die.
These policies also feature a tax-deferred savings component called a cash value, which builds up as you pay premiums. Once you’ve built up enough, the money in your cash value can go into your savings, be used to pay for the policy, or be taken out as a loan.
Because it’s generally more expensive than a term policy, this type of insurance isn’t recommended for all parents. Permanent policies are best if your child suffers from a condition or disability that would make them a long-term dependent, or if you need to use the cash value as an extra savings tool.
Choosing Your Life Insurance Beneficiary
Life insurance companies are prohibited from paying out from minors, so you may not be able to list your young children as beneficiaries until they turn 18. However, there are two methods you can use to make sure that your death benefit payout will benefit your kid.
Individual Legal Guardians
In preparation for a worst-case scenario, you should name a legal guardian to manage the money. Once appointed, this legal guardian will be responsible for your child after your death. To help them take care of your kids, you can also name them as a beneficiary of your policy.
Because they’ll be in charge of providing money for your kids, you should name a trustworthy person as your legal guardian. If your appointed legal guardian dies before you, remember to update your beneficiary information by choosing another person to be your kid’s guardian.
If you didn’t name another person before you pass away, your death benefit may be tied up in court proceedings. This makes it harder for your children to receive your payout.
If you put your insurance money in a trust, you’ll also need to name a person to be its custodian. After your death benefit has been put into the trust, the custodian is responsible for managing the money according to your wishes. Because trusts may count toward your child’s assets and impact their eligibility for government aid, you should ask financial planners for further information before establishing a trust.
Supplemental Protection For Single Parents
Because solo parents usually lack a safety net, it’s a good idea to buy extra protection. Here are three policies that you need to know about if you’re looking to improve your insurance protection.
Accidental Death & Dismemberment Insurance
An accidental death & dismemberment (AD&D) policy is usually used to supplement life insurance coverage. This policy pays out if you die because of an accident. As an extra benefit, AD&D policies also pay out a lower sum of money if you suffer a permanent disability due to an accident.
What constitutes an accident may be different between life insurance companies. Before purchasing an AD&D policy, you should always check the terms to know which scenarios are covered.
Single parents usually depend on one source of income to provide for their children. If you can’t work or earn money on your own, this income stream will be disrupted and your children’s financial needs won’t be fulfilled. To prevent this, you can apply for a disability policy.
Disability policies act as an income replacement while you’re unable to work. In addition to buying it yourself, you may also get short-term disability benefits from your workplace.
Child Life Insurance
In addition to insuring yourself as a parent, you can also insure your children. Some insurers offer child protection riders that can be added to your own policy for an extra fee.
Typically, these riders can also be converted into a full-fledged policy once your child grows up. This helps keep your child insurable, especially if they develop health conditions during childhood.
If you’re a solo parent, getting life insurance to protect your children’s financial well-being is essential. Term policies are usually enough for most families, while permanent policies are best if your children are long-term dependents due to health conditions or disabilities. In addition to traditional life insurance, you can strengthen your protection by buying supplemental policies such as disability and AD&D policies.
If you’re looking for life insurance advice as a single parent, Wesley Insurance, LLC is here to help! Our team of professionals can assist you to find the best insurance protection for your children. Contact us today for more information!