Life Insurance for Single Parents: An Absolute Necessity

While life insurance is important for most people in any circumstances, it is an absolute necessity for single parents. A parent raising their children alone, without the help of a partner, takes on much more risk. As their absence would leave their children in an extremely delicate situation, a life insurance policy is essential.

In this article, we will go over the main options available to single parents who want to buy coverage to protect their children in the event of an unexpected loss. If you’re in this situation, keep reading this article to find out your best options.

Life Insurance for Single Parents: An Absolute Necessity
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Life Insurance for Single Parents: Article Contents

Single Parents: The Need for Life Insurance

Life insurance has one basic mission: guaranteeing that the insured's loved ones will receive money to maintain their quality of life, pay debts, and generally confront their uncertain future in the case of his or her death. This mission becomes especially important for single parents (widowed, separated or divorced) who use life insurance as a way to guarantee that their children can keep going once they’re gone.

Single parents are generally in vulnerable situations. They tend to be reliant on a single income and are the main source of support for their children, even if they get some help from family. If they should unexpectedly die, their children may be left in precarious conditions, forced to depend on others--family, friends, or, worst of all, social services or residential homes for orphans.

To mitigate this instability as much as possible, single parents should take out life insurance. If anything happens, their children will have the money to maintain their quality of life, continue their schooling, and, ultimately, face this difficult time with more peace of mind.

However, the cost of insurance can be a problem for many single parents. The financial situation of a parent raising their children alone is usually complicated. They typically need all their income to cover the many expenses supporting a family entails: housing, education, food, clothing, medical services and more. Life insurance tends to be low on a single parent’s budget priorities. Other costs need to be covered before they can set aside an amount for a policy. Even so, life insurance is a basic priority for parents fending for themselves, and they should make every effort to acquire a policy.

With the right know-how, life insurance policies can be obtained for very little money. It’s important to be as informed as possible in order to make the right choice and get the most of out the different types of insurance.

Making the right choice means knowing how much coverage is needed. When choosing the policy’s coverage, single parents have to consider their family’s actual financial needs. For example, if they’re paying a mortgage, they need to take into account that the payout has to cover the remainder so that their children can continue to live in the family home. They also have to bear in mind any unpaid debts or loans and funeral costs. And on top of that, there's support and education. If you do the numbers, it’s clear that single parents need significant coverage: many experts recommend amounts well over $500,000. For this reason, they need to find insurance that offers coverage in this range.

What Is the Best Insurance for Single Parents?

Of course, there are many situations in which a parent is left alone with their children. Perhaps the most favorable, at least from a financial point of view, is divorce: the ex-spouse likely pays child support, and may even cover many expenses or have shared custody. In this case, each parent’s financial situation can be much more stable. However, it’s not uncommon for single parents to be in situations of financial hardship.

For struggling parents, the best option is to purchase term life insurance. Term or temporary insurance is less expensive and, when used intelligently, can provide enough coverage to weather a storm until better days.

Term insurance is cheaper than permanent insurance because it is purchased for a set period of time, usually 5, 10, 15, 20, 25, or 30 years. Once this time has passed, the insurance expires, but if the insured dies while the policy is in effect, their beneficiaries will receive the payout or death benefit. These short durations allow insurers to control their risk. This results in lower premium prices and easier access to insurance, with quick and easy qualification processes.

Term insurance is an affordable option that can provide enough coverage, as long as it’s used intelligently. For more coverage, there is long-term term insurance, with term lengths of 20 years, for example. A person under 35 who is healthy and employed can purchase a 30-year term policy with over $500,000 in coverage for less than $30 a month in premiums.

If $30 a month is still too much, there are more affordable options. A common strategy is laddering, or combining two or more term policies so that one will always be valid when another expires. The prices will be lower, though typically so will the coverage.

There’s another big plus to term policies: if the insured’s financial situation improves, they can be converted into permanent policies without needing to go through the qualification process. This option is very attractive, because it allows people easy access to much more valuable policies with better coverage.

Permanent life insurance always comes with a savings component that generates something called cash value, an amount of money that will end up in the hands of the insured. There are various types of permanent insurance based on the risk the investor takes on: whole life or traditional, the simplest option; and universal, variable and variable universal, the more complicated ones.

If possible, single parents should consider permanent insurance, perhaps whole life for its simplicity. These policies, in addition to providing full-life coverage, accumulate money that will come in handy in their final years.

Choosing Beneficiaries: A Delicate Matter

Once they’ve decided which insurance is right for them, single parents must face another difficult decision: choosing their beneficiaries, the people who will collect the payout if they die.

This important decision is especially critical in this case, because there may not be many family members with whom to entrust the children’s care and the payout. As such, it’s essential to designate the beneficiary or beneficiaries with great care. 

One big mistake would be to directly name the minor children as the beneficiaries. They might not be able to access the money until they reach adulthood. If the parent wants their children to be the beneficiaries, one interesting option is to appoint a person to administer the money, or even better, set up a trust that will take care of everything.

It’s also not a good idea to name the estate as the insurance beneficiary. This could delay access to the money, because it must first go through probate, a process that can be time-consuming and costly.

Perhaps the best option is to assign the money and children’s care to someone the insured can trust. If the children’s other parent is alive and involved in their life, it might be a good idea to name them the beneficiary. If they are not willing to take responsibility of their children, the parent should consider other options, such as family members or trusted friends. These people are taking on a great responsibility, which the payout money will help them fulfill.

As we’ve seen, there are many options for single parents to purchase life insurance. From low-cost products to high-cost ones with more benefits, there is a policy out there that’s right for everyone's budget. Single parents should request insurance quotes and acquire this essential coverage as soon as possible.

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