The 2017 Insurance Barometer Study by Life Happens found that only 60 percent of respondents agreed that single parents of young children need life insurance. On the other hand, 82 percent of respondents said married couples with young children need life insurance protection.1
The difference in the survey results is confounding because single parents are often in greater need of life insurance protection than couples are. A single parent could be a child’s primary or even sole caretaker. If a single parent passes away, the child may have little financial support.
Life insurance minimizes that risk. The death benefit can be used to provide care and financial security for a child. If you’re a single parent without life insurance, now may be the time to examine your options. Below are a few tips to help you get started. Your financial professional can help you determine the correct amount and type of life insurance for your needs.
Many people use simple formulas, like a multiple of annual earnings, to determine their life insurance coverage amount. Those formulas can be helpful for quick estimates, but you may want to do a more detailed analysis to come up with a precise figure. Think about how your benefit would be used, and then estimate an amount needed to fund those goals.For example, consider the costs your child or their guardian may face after your death. How much money would the guardian need to provide proper care for your child? Do you want to leave money for your child’s education? Would you like to leave a lump sum that they can tap into when they become an adult? Consider your specific goals, and then estimate amounts for each objective.
Consider alternatives to making your child the beneficiary.
You may think your child should be the beneficiary on your life insurance policy. After all, the coverage is for his or her benefit. However, leaving money directly to a child may not be the best idea. In fact, many life insurance companies won’t pay a death benefit directly to a child. Instead, the courts may direct the money to the child’s new guardian.
Instead, consider establishing a trust for your child and then making the trust the beneficiary on the life insurance policy. In the trust document, you can state exactly how the money should be managed and used. This reduces the risk that the money is used for some unintended purpose. You can even name a loved one or an adviser as the trustee to make sure your wishes are followed.
Don’t ignore permanent insurance.
Term insurance is a popular choice among parents. It provides temporary protection when your child is a minor. The insurance then goes away after a certain period of time. Because the coverage is temporary, it’s usually affordable.
However, don’t ignore permanent policies. Permanent life insurance has a cash value accumulation feature that isn’t found in term insurance. You can use that feature to save money on a tax-advantaged basis. In the future, when your child is grown, you can tap into the policy to fund your goals, like retirement. A financial professional can help you analyze permanent policies to see if they make sense for you.
Ready to develop your life insurance protection strategy? Let’s talk about it. Contact us today at MasterPlan Retirement Consultants. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
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Investment advisory services offered through MasterPlan Retirement Consultants, Inc. a Registered Investment Advisor in the state of Georgia. Insurance products & services offered through Fricks and Associates, Inc. MasterPlan Retirement Consultants, Inc. & Fricks and Associates, Inc are affiliated companies.
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