As a single parent, you have a lot to shoulder, from paying the bills, to taking your kids to soccer practice, to grocery shopping. With all that responsibility as a sole provider, it’s important to think about what might happen if you aren’t around. That’s why buying life insurance is an important consideration. Here are a few things to keep in mind about buying coverage:
Consider Types of Life Insurance
A life insurance policy allows you to ensure death benefit proceeds goes to the beneficiaries you name. There are two main types of life insurance – term and permanent. Term life will cover you for a certain number of years that you determine. Should you die within that term period, the insurance pays the death benefit to your beneficiaries. Term life is a popular policy for most families and it’s cheaper than permanent. Permanent life insurance generally includes a tax-deferred, component known as “cash value1.” It’s a good idea to work with a financial professional if you decide to purchase a life insurance policy.
Determine How Much to Buy
How much insurance you buy depends on what the financial needs of your children are. Start by taking stock of everything you currently pay for to help determine the coverage you may need for your kids. The cost of raising a child as a single parent is expensive, and when you add the cost of your funeral on top of that, the amount needed for your children will accumulate fast. Consider:
- How much of your income needs to be replaced to maintain the standard of living your offspring are used to?
- What will it cost to pay off your debts?
- What long-term expenses do you want covered (i.e. college costs)?
- How long should the coverage last?
Make a Budget to Buy Life Insurance
A budget can help you determine how much life insurance you can afford and how much you can set aside and save. You can write out a budget on paper or put it into a spreadsheet program.
Name a Beneficiary
A life insurance company can’t give money directly to your children if they are minors, so you might want to appointment someone to be the custodian of your policy. Revisit your beneficiaries every so often to make sure the right people are named.
Keep an Updated Will and Information
Keeping your will up-to-date and having a guardian for your children, as well as an executor is recommended. It is also recommended you keep important documents with your will to help ensure your children are properly cared for. Such documents can include:
- Your children’s medical records
- Doctor addresses and contact information.
- School information and contacts.
- A spreadsheet that shows your monthly bills and payments, as well as an estimate of your children’s financial needs.
- A power of attorney that allows someone to act on your behalf if you cannot make decisions.
1. The tax-deferred feature of the universal life policy is not necessary for a tax-qualified plan. In such instances, you should consider whether other features, such as the death benefit and optional riders make the policy appropriate for your needs. Before purchasing this policy, you should obtain competent tax advice both as to the tax treatment of the policy and the suitability of the product.