If you’re a single parent, you know raising a child on your own is expensive. But imagine if something happens to you. How will those costs be covered for your kids? That’s where life insurance comes in. If one parent passes away in a two-parent household, the surviving parent will still be there to provide for the family. In a single-parent household, there may not be someone to rely on when you’re gone. To help make sure your children are taken care of, here are a few tips about buying life insurance.
Choose a Type of Life Insurance
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.” Work with a financial professional if you decide to purchase a life insurance policy.
Name Your Beneficiaries
A life insurance company can’t give money directly to your children if they are minors, so you’ll most likely want to name a custodian for your policy. Make sure to revisit your policy every so often to make sure the right people are named.
Decide How Much to Buy
To figure out what your children will need financially, take stock of your expenses. Consider:
- How much of your income needs to be replaced to maintain the standard of living your offspring are used to?
- What long-term expenses do you want covered (i.e. college costs)?
- How long should the coverage last?
- What will it cost to pay off your debts?
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.
Keep an Updated Will and Documents
Keeping your will up-to-date and having a guardian for your children as well as an executor is recommended. It is also recommended that you keep important documents with your will to help ensure your children are properly cared for. Such documents can include:
- A power of attorney that allows someone to act on your behalf if you cannot make decisions.
- 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.
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.