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Being a single parent is probably one of the hardest and most challenging, kick in the groin type of job most of us will ever have to face. On the other hand, it can also be one of the most rewarding and enjoyable experiences you might ever have.
As a single parent, I know this from firsthand experience. My wife passed away suddenly last year and left me with an adorable, cranky, hormone crazed 13-year-old teenager. My wife did not have a life insurance policy – shame on me! – for reasons I won’t go into here, but I can tell you it sure would have been financially helpful if she did have a policy.
Life Insurance Disconnect For Single Parents
The thought of dying and leaving my daughter is pretty much unthinkable. But if that day happens when I go to the great unknown, I want her to be able to have the best things that life can offer. I have 3 life insurance policies and wouldn’t be caught dead without them (Pun intended). I want my daughter to have money to help her live comfortably, pay for her college, her car and not have to worry about money for the rest of her life.
But surprisingly, most single parents don’t think like this. Almost 70 % of single parents with children living at home don’t have life insurance. According to a study by Genworth Financial, unmarried parents are significantly less likely to have life insurance than married parents.
The study shows that 59 percent of unmarried women are without insurance, compared with 43 percent of women who are married. For men, it gets even worse. 69 percent of unmarried fathers do not have life insurance compared with 34 percent of married fathers.
Why Life Insurance for Single Parents is Crucial
A life insurance policy is important to help provide living expenses if you die so your child can continue living the lifestyle he or she has been accustomed to. Insurance proceeds can also provide money for your child to go to college and have every opportunity to get ahead in life.
If you have more than one child, insurance can also make sure that your children don’t get separated by the courts and go to different guardians or even a foster home. If there are no funds to help support your children, a judge will most likely separate your children to be cared for by different guardians.
No one expects to die in the prime of their life and even though a recent study by the Life Foundation found people are living longer, it also found that people still die.
The average mortality rate for males is 1.5% and 1.1% for females. In other words, for every 100 people, 1 male or female will die in a given year. The probability of a male dying before the age of 65 is 18% and 11% for females.
Morbid, I know. But these facts are important because people die and many don’t expect to.
How Much Coverage?
A rough rule of thumb is to buy coverage equal to 5 to 10 times your current salary. If you like to do math, you can figure lump sum of money multiplied by a current interest rate invested in a savings or money market account.
For instance: $1,000,000 at 3% would provide $30,000 a year without eating into your principle. There are many life insurance calculators available on the web where you can figure the amount of coverage you need and how long the money will last. Just Google, “Life Insurance Calculator”
What Type Of Coverage?
Term insurance is probably the best choice for a single parent. It’s inexpensive and not very complicated to understand. Basically you purchase a life insurance policy for a specific term or time period, say 10, 20 or 30 years. If you die within that term, a death benefit will be paid to your beneficiaries.
Who Gets The Money?
How to Make Sure Your Children Get The Insurance Proceeds
Every insurance policy has a beneficiary page – it’s the most important part of your policy. This is where you tell the insurance company who gets the money! If you leave this section blank, the insurance company does not know where to send the proceeds and the funds will end up in your estate or in probate.
Avoid This Beneficiary Planning Mistake
In most states a child under the age of 18 – in some states age 21 – cannot receive any life insurance proceeds until they reach the legal age. In other words, a minor child cannot receive the insurance payout even if you name your child as the beneficiary. So you need to get this part right.
Tips For Beneficiary Planning The Right Way
First of all, this entire section is a mute point if you don’t have a will. I am not a lawyer and cannot give legal advice but if you’re a single parent, you need a will. Talk to an attorney.
Guardian as Beneficiary
Most people – and some agents, do not understand beneficiary planning for single parents. The insurance proceeds should not be left to a child but to a legal guardian or custodian. This is a person of legal age and someone who you trust, (Guardian – a person of trust).
So you must name this person as your direct beneficiary of your insurance policy. It could be your mother, brother, sister, aunt, uncle or anyone who you feel will use the money in the best interests of your child or children. You should also discuss with this guardian what your expectations are for your child and the money in the event of your death.
Trust For Minors as Beneficiary
When some folks hear the word trust, they immediately think, “Oh no, now I need to hire an attorney.” You can hire an attorney to set up a beneficiary trust and this is probably the best legal option to assure your children will receive the insurance proceeds. It’s also the best option to assure how the trustees use the money. However, using an attorney could cost you a few thousand dollars to set up this type of trust.
But there is another way and it won’t cost you a dime.
What many people don’t know is that most insurance companies have a special beneficiary form called “Trust for Minor Beneficiaries.” The only way to get this form is to ask for it. On this form your child or children are named as beneficiaries of your insurance policy. Then you would name a trustee or trustees for the insurance proceeds.
This type of planning is better than just naming a guardian because you are creating a formal agreement with the trustees and the insurance company that the money will be used in the best interest of your child or children. It’s is not a legal document but more of an agreement. The trustees still could use some of the proceeds for their own selfish needs, to let’s say, buy a Porsche but hopefully you chose a trustee you can trust.
Closing Thoughts
Life insurance for single parents may not be an easy topic for some people to think about but it is a very important one. Your child or children depend on you but if you die unexpectedly and are not there for them, their lives could be ruined.
Not having enough money to buy a policy is no excuse. Get a life insurance policy. You will sleep better at night.
