RoxanneHowever, statistics show that more than 60 percent of single parents have yet to purchase a life insurance policy. Children of uninsured single parents are vulnerable to many financial risks if their parents die unexpectedly.
There are alternatives to address this risk. Despite common belief, single parents have access to affordable life insurance policies that can protect their children until they reach adulthood. In this guide, we talk about the importance of having life insurance, which policies are best for single parents, and details to consider along the way.
Life insurance is an affordable way of giving financial protection to children in case of death
There is a common misconception that life insurance is only for married couples. However, financial advisors agree that single parents actually need more life insurance than married couples in order to offer children proper financial safety. Yet as of 2019, more than 60 percent of single parents have yet to purchase life insurance.
According to the Pew Research Center, more than 34 percent of children live with a single parent. The majority of these children would be exposed to financial difficulties if their parents stay uninsured. Single parents should always make it a priority to have a backup plan that can protect their children in case of an unexpected death.
For single parents, term life insurance offers the most benefits
There are many types of life insurance policies in the market. Insurance companies offer a wide variety of plans that often include additional benefits such as cash value accounts, the ability to take loans from the coverage amount, and more. A single parent’s main concern is to protect their children until they achieve financial independence.
The best option is a term life insurance policy. Term life insurance policies provide coverage during a specified amount of time at a much more affordable premium. For example, a $300,000 term life insurance policy with a fixed term of 20 years would have a premium of $300 annually. A whole life insurance policy with the same coverage would have a much higher premium, often above $2,000.
Some details should be considered carefully
For single parents, buying a life insurance policy involves additional considerations when compared to married couples. For example, a married couple purchasing life insurance can designate the surviving parent as the beneficiary of the policy. Single parents cannot afford this luxury and are forced to find another solution because insurance companies are not allowed to register a minor as a beneficiary.
One option is to name an adult custodian who will handle the insurance money until the child reaches adulthood. However, most financial advisors recommend creating a trust instead. With the help of an attorney, single parents can set up a trust to handle the money and name their children as beneficiaries. A trust allows single parents to split the payout into annual sums, which can guarantee the financial safety of their children for a decade or more.
Raising a child as a single parent can be expensive. Many single-income families are struggling to guarantee their children a future without financial hardship. Although $300 a year may seem like a large number for many single parents, protecting the future of their children with a life insurance policy makes it worth the trouble.
