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If you’re a single parent, life insurance is especially important to you, because there may not be another person in the picture to pay your loved ones' expenses.
Life insurance, unlike other types of insurance, isn’t meant to be used by the person who pays for it. It’s for your loved ones, the beneficiaries who will receive a death benefit after you die. The death benefit will help them make up for the income you once brought home. You want to make sure you leave enough for your loved ones to cover expenses like mortgage payments and college education for your kids.
If you’re a single parent, life insurance is especially important to you. In two-parent households, if one parent dies, the other may still be able to provide an income that keeps the family solvent. But as a single parent, there may be no one else to take care of your children financially if you’re gone, especially if the child is too young to generate an income himself or herself. A life insurance death benefit would make sure there is money to pay for the child’s continuing education and expenses like a mortgage.
Read on to learn more about buying life insurance as a single parent.
You generally don’t need to buy life insurance until you have dependents. That’s because life insurance is meant to protect those who rely on you financially from the burden of having to pay expenses without your income.
But, in some cases, it may be wise to buy life insurance when you’re younger even if you don’t have any dependents yet. You purchase life insurance by paying monthly or annual premiums, which are calculated based on how much risk you pose to the life insurance company that you’ll die and they’ll have to shell out. The older or less healthy you are, the higher your premiums will be. Because life insurance coverage is meant to last for decades, by the time you have a family, whose livelihood you help finance, you’ll be glad you locked in a lower premium rate when you did.
It’s impossible to foresee the wrench life might throw into your plans, however. If you don’t buy life insurance because your spouse is the main breadwinner, you have to hope that the marriage doesn’t go sour or your spouse doesn’t meet his or her demise in a freak accident. Life insurance gives you the peace of mind that if something terrible happens, your dependents don’t suffer needlessly. It’s also a good idea if you were never married at all, and your dependents were entirely unplanned. Life insurance helps you complete your financial plan even when that plan may or may not include becoming a single parent.
As a single parent, the first thing you want to do is make sure you name the right beneficiaries. That could mean cutting out a particularly nasty ex-spouse, for example, but make sure you’re divorced instead of separated: some states (called “community property” states) legally mandate that you name your spouse as the beneficiary of a life insurance policy.
Regardless, it’s a good idea to update your beneficiaries every so often, such as after a major life milestone, because you won’t have a direct line to your life insurance company when you’re six feet under and a tiny part of your moldering subconscious realizes you named the wrong John Smith.
As a single parent, you may want to update your policy to designate only your child as the beneficiary. We caution against that; namely, life insurance companies are prohibited by law from paying a death benefit to a minor, and anyway, children have very few expenses.
Instead, you can name a legal guardian to oversee the funds as part of a trust. The custodian will use the death benefit to make legal payments on behalf of the child, such as those for the child’s education expenses, and can even continue making mortgage payments for a house you want the child to continue living in (with appropriate supervision, of course). Check with a certified financial planner about your courses of action, because money in a custodial account could count as an asset when determining a child’s eligibility for financial aid.
If you’re not married to your child’s other parent and he or she is still alive, you’re under no obligation to give any part of the death benefit to him or her, even if he or she is in the picture or otherwise contributes to the child’s well-being. However, you may wish to give some part of the death benefit to an adult with whom the child has a close relationship if you trust that person to spend it on the child. You can name as many beneficiaries as you want and what proportion of the death benefit each will receive.
How much life insurance you need is the most important consideration when taking out a policy. Your family won’t be on the hook for any debt you rack up to which they are not co-signed. (Beware of debt collectors who come calling after your loved one’s death! It’s legal for them to call, but you owe them absolutely nothing if you weren’t a co-signer.) But if the house or car is in your name, and you’re not around to keep paying for them, those items could still get repossessed.
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For that reason, you need to take stock of everything you pay for when determining what amount of coverage you need. As a single parent, that means thinking about tuition costs, medical bills for your child, and the cost of maintaining the standard of living your child is used to. You also need to figure out how long the life insurance coverage needs to last. Most people need about 30 years’ worth of term life insurance coverage: long enough for your child to go to college, start his or her own family, and for your mortgage to finally be paid off. By the time you’re ready to retire, you don’t have any dependents who will be financially burdened by your death.
Policygenius lets you plug in a bunch of numbers and lifestyle factors in order to easily compare life insurance online. You’ll see how much your premiums will increase with each increase in coverage and you can make an informed decision after seeing your options and apply within minutes.
As a single parent, you already know how expensive it is to raise a child on your own. Add on end-of-life expenses, such as the cost of paying for your funeral, and you can get a picture of the coverage you need. You’ll even want more coverage than a two-parent household because there won’t be another person to continue paying the bills.
Before you shop for life insurance but after you’ve calculated your coverage needs, you should create a budget. A budget can help you determine how much you can afford, and help you make room to pay for premiums if you need a lot of coverage.
Part of your budget should be setting money away in savings. If you’re a single parent, that could mean putting money into a tax-advantaged Section 529 account, which your child can draw from for his or her education expenses. Money in a 529 accrues compounding interest: your returns reinvest themselves, so you can get returns on your returns, like an individual retirement account.
Budgets are also just good financial planning. You may not even realize that you’re spending $3,600 on candles every month, and a budget can help you figure out where to cut back and how to maximize the money you earn. Because a life insurance policy helps you complete your financial plan, creating a budget to monitor your spending helps you get a picture of that financial plan in action.
The easiest way to make a budget is to just write it all out on a spreadsheet program like Microsoft Excel or Google Sheets. Put your spending categories at the top and add a row for each expense, and make sure you don’t exceed your allotted spending in each category. You can automate the program to run the equation for you, so the process is painless.
As a single parent, you need to make sure your child knows exactly what to do in the event of your untimely death. In addition to having the number of your lawyers and important relatives on file, you should tell your child where to find your life insurance policy document. The document will describe who to contact, what information he or she needs to file a death benefit claim (such as a death certificate), and the benefit amount.
If you are the child of a single parent, and you know there’s a life insurance policy to which you’re the beneficiary, the first thing you need to do is look for the document. Scour your parent’s records, including checking on his or her computer and in dusty old files stored in the back of the closet. (Remember, important documents tend to grow legs over the course of the 30 years that a typical term life insurance policy lasts.)
The policy may also be located on the National Association of Insurance Commissioners’ Life Insurance Policy Locator Service.
You can also try calling the life insurance carrier directly, or looking into your parent’s bank statements if you have access where you can see to whom he or she was paying premiums.
If you’re a minor, you won’t be able to gain access to your parent’s bank statements through legal remedies, and the life insurance carrier may not speak to you. In this case, hopefully your parent named a trust or legal guardian to oversee the funds, and this custodian will be in charge of alerting the life insurance carrier to your parent’s death and filing a claim.
If no custodian was named, the benefit could go to your parent’s estate, in which case it could be used to pay for any debts he or she owed before it’s disbursed to you. For that reason, your parent should also have a will. Otherwise, you could be tied up in court for a protracted legal battle, with only a court-appointed guardian to advocate for you.
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