Let’s face it, being a single mother can be tough. Many single moms are relying on a sole income to support themselves and their child or children. Regrettably single parents are one the largest sectors in our country to not own life insurance. This is unfortunate, because these households are the ones that need the life insurance most.
Since having life insurance as a single mom is critical, I put together an 8 step tip sheet to help answer common questions and to make the buying process a lot easier.
8 Life Insurance Tips (Facts) for Single Moms
1. Life insurance for most single moms is very inexpensive – One of the biggest reasons why single moms do not own life insurance is because they believe it’s too expensive. For most moms this will not be the case. In fact, a single, healthy 33 year old female can own $250,000 worth of term life insurance, locked in on a 20 year term for as low as $13 a month or $140 a year! No matter how tight your budget is, there is almost always something you can eliminate in your spending budget to afford term life insurance and protect your child from potential catastrophe.
2. Buy term life insurance - Many of the single moms I talk to who don’t own life insurance are looking to purchase whole life insurance because that is what their parents or grandparents had. While whole life insurance does have some advantages, the negatives far outweigh the positives for a single mother in 2013. The main disadvantage of whole life insurance is cost. As you can see in the first tip, term life insurance can be very inexpensive. Whole life insurance costs considerably more for the same death benefit protection. If your main goal is to safeguard your children if you were to pass away prematurely, then term life insurance achieves this and at the lowest possible price.
3. Choosing the correct amount of life insurance - A general rule of thumb when choosing how much life insurance you need is to multiply your annual income by at least 7 to 10 times. For example, if you have an annual salary of $40,000 per year, you multiply that by 10 and you arrive at $400,000. Since life insurance is income tax free, you know exactly how much money your children or their caregivers will receive. Also, if your budget doesn’t allow the 7x to 10x your income rule right now, at least purchase a policy that you can afford today to protect your child now and you can always purchase more life insurance in the future when your salary increases.
4. Purchase a policy now, even if it isn’t the exact amount you want - Many of the single moms I speak with want a large life insurance policy such as a million dollars in coverage. However, with their current budget they cannot afford that policy at the current time so the end up not buying anything at all. This is completely the opposite of what you should do. Purchase what you can afford today and then when your income increases you can always buy another policy later. $250,000 in cash left to raise your children is a lot better than $0!
5. Compare multiple companies – Life insurance premiums for a single mom can vary greatly from one company to the next. If you have or had an adverse health condition your premiums can fluctuate even further. Since many single moms are price conscious shoppers, make sure you receive quotes from multiple companies or work with a broker who can shop the top companies for you. You can literally save over 70% just by doing this.
6. Choosing a beneficiary - In most states, death benefit proceeds cannot be paid directly to a child. It makes sense since most children couldn’t manage hundreds of thousands or even millions of dollars. If you did name your child as the beneficiary, in most cases the insurance company would pay the proceeds to the duly appointed guardian of the property for each minor child beneficiary. This guardian is appointed by the court. However, since you are no longer here, there is no guarantee that this person the court appoints will be the one you would have chosen to take on this great responsibility. A better solution to naming your child as the beneficiary would be to name a custodian as a beneficiary for each minor child. This would be someone you would trust such as a parent or a sibling. Another alternative would be to establish a trust and name it as the beneficiary. You would name a trustee to distribute the money to the child or children in accordance with the terms that you would have wanted such as making the money available at particular ages. With the internet, websites such as legalzoom.com make setting up a trust easy and very affordable. Another option is to meet with a local attorney who can assist you in setting up the best estate plan for you. It is crucial that you let the family members you can trust know about your life insurance policy. They will have to contact the insurance company if you died, the insurance won’t contact your family.*
7. Buying life insurance is really easy - Another reason many single mothers do not have life insurance is because they fear the buying process is too complicated. The truth is buying life insurance is easy and straight forward. With the internet, all you have to do is compare rates from multiple companies, you can use this free quote engine here and then call a company or broker, answer some questions on the phone, they will schedule your free health exam, then in a few weeks once your approved if you accept the policy make your initial payment and you are done!
8. Choosing the right term - Most term life insurance companies offer term lengths of 10, 15, 20 and 30 years. The longer the term the more expensive the premium will be. This is because the insurance company is guaranteeing the rate for a longer period of time, and your chances of dying increase with age. The most common term length in America is 20 years. By then your child or children will be of legal age and your death would not have the same devastating financial impact as it would when they are still children unable to fend for themselves. With that being said, if you’re budget is very tight, you may want to choose a 10 or 15 year to keep the cost down and at least have something in place until your finances improve. At this point you can just purchase another policy with a longer term. Also, parents with children in college and are covering the costs of their higher education will take out a ten year term and then cancel the policy after four or five years when their children graduate. This provides a safety net in case they were to suddenly pass away while their child is in university, the child could finish their education. Also, many new parents will purchase a 30 year term because this will cover their child or children through their dependent years all the way until they graduate college and get established in the work place.
The bottom line is to do something. Don’t let the fear of price or believing that the buying process is too complicated to prevent you from owning life insurance. Your child or children need to be protected against the tragedy that would occur if you suddenly died. Give your children the opportunity to achieve all of their goals and dreams and safeguard yourself and them from the unknown by owing a quality life insurance policy.
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*This website does not provide tax or legal advice. Please see your attorney or financial professional for tax and legal advice.
*Rates for the best health class as of August 17th 2013