RoxanneLife insurance is an important financial safeguard for single parents raising children on their own. However, statistical data shows that over 60 percent of single parents in America have yet to purchase a life insurance policy. Children of uninsured single parents are exposed to many financial risks if an unexpected death takes place.
There are alternatives to address this potential risk. Despite common belief, single parents have access to affordable life insurance policies which 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 important 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 2018, more than 60 percent of single parents gave yet to purchase life insurance.
According to the Pew Research Center, more than 34 percent of children in America live with a single parent. The majority would be exposed to financial difficulties if their parents stay uninsured. Single parents should always make it a priority to have a backup plan which 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 which often include additional benefits such as cash value accounts, the ability to take loans from the coverage amount, and more. However, the only concern single parents have is to protect their children until they achieve financial independence.
As such, the best option is a term life insurance policy. Term life insurance policies provide coverage during a specified amount of time at a much 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 given that insurance companies are not allowed to register a minor as beneficiary.
One possible option is to name an adult custodian who will handle the insurance money until the children reaches adulthood. However, most financial advisors recommend to set up 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, for example, allows single parents to split the payout into annual sums, which can guarantee the financial safety of their children for a decade or more.
In the United States, raising a child as a single parent can be significantly 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 their future with a life insurance policy makes it worth the trouble.
