Life insurance is an important piece of every family's financial protection plan, but it's especially important for single parents who can't readily rely on someone to cover their child's current standard of living — or future expenses. Of course, no parent wants to imagine a worst-case scenario, so to expedite the life insurance shopping process, here are five tips for single parents looking for a policy.
1. Use a 'needs-based' approach to figure out how much life insurance you need
Take stock of the big financial obligations your children rely on you to cover, like the rent or mortgage, utilities, medical bills, etc. Consider, too, future expenses you're planning to cover, like college tuition. Most people also factor funeral expenses and a financial cushion into their policy. If this sounds daunting, we can help you easily figure out how much coverage you need. Our life insurance quoter will crunch all those numbers for you and provide a tailored recommendation.
2. Opt for term life insurance
There are two main types of life insurance. Term life insurance lasts for a set period of time, usually 5 to 30 years, then expires. Whole life insurance lasts until you die and comes with a cash-value component that's best thought of as a forced savings vehicle. Whole life insurance sounds like a better deal, but you pay handsomely for those bells and whistles. While there are instances where whole life is in order — say you're managing a large, complex estate — term life insurance is much more affordable and, luckily, fits most families' needs. Learn more about term vs. whole life insurance here.
3. Time your policy to expire after your youngest child's college graduation
If you opt to go with term life insurance, you have to pick how long you want your policy to last. Single parents should consider getting coverage that stays in effect until after your youngest child graduates college. At that point, you’ll hopefully have fewer dependents relying on your income.
4. Consider naming a trust as your beneficiary
A single parent is often inclined to name their child as their beneficiary, but there's a big reason not to: Life insurance companies can't pay a claim out to a minor. It's against state laws. If your child is your beneficiary and under-age at the time of your (untimely) death, the court has to appoint a legal custodian to oversee the distribution of your death benefit. You can pre-empt court proceedings from delaying the payout of much-needed life insurance funds by naming a custodian when you take your policy out. Or you can set up a trust and name that fund as your policy's beneficiary. In that instance, you can set up directives as to how the money gets used. You can learn more about naming a child as a beneficiary here.
5. Rely on your budget
It'll help you determine how much coverage you can actually afford — and pinpoint places to pare back if you're worried about paying premiums. Keep in mind, a 30-year, $500,000 term life insurance policy can cost as little as $34 a month. You could potentially "find" that money by reworking your budget. If you don't have a one, we've got a template so you can easily put together a solid financial plan. And, if you're not sure how to trim your current budget back, here are five ways to bankroll your financial protection plan in five minutes or less.
Got more questions about financial protection? Visit our Life Insurance Learn Center for answers!
Disclaimer: Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.