Single Parents: Insurance Needs

Published October 01, 2013

Single Parent
As a single parent, the types of insurance you need are similar to married couples. What is unique is the amount of coverage needed, as there isn’t a second parent or a second income to help shoulder a financial crisis. Three types of coverage recommended for single parents are life insurance, disability insurance and medical insurance.

Life Insurance

Parents, on average, don’t have enough life insurance. Less than half of all married couples with children have life insurance, and the number drops to only about one-third for single-parent households with children living at home, according to a 2011 Genworth Financial LifeJacket study. All parents should consider buying some type of life insurance, but especially single parents. Otherwise, if you should die unexpectedly, your children could be left with nothing. While single parents are the ones who need life insurance the most, they are often the ones without the time and money to get what they need. But life insurance doesn’t have to be expensive. Many single parents are surprised to learn that they can get the amount of coverage they need at an affordable price. And even if you can’t afford what you need, a little coverage is better than nothing.

You may already have group coverage through an employer, but this is often not enough. A good rule of thumb is to get enough coverage for six to eight times your annual salary, and more to cover debts or your children’s education. You’ll have to choose between two types of life insurance:

Term Life: Just as its name implies, term life insurance covers you for a specific period of time, or term. You can choose a 10-, 15-, 20- or 30-year term. Since it offers a death benefit but no cash value, term life insurance is an inexpensive way to protect your beneficiaries for a specified period of time.
Whole Life: Whole life is a type of permanent life insurance. It provides coverage that lasts a lifetime and also builds up a cash value that you can borrow against, withdraw or use to pay future premiums.
Purchasing adequate life insurance coverage will not only protect your children from financial ruin in the event of your death, but it should also help ensure that they aren’t split up. When there is money available to cover their living expenses, the guardian you choose will be better able to provide for them. Just make sure to choose a guardian and a beneficiary for your policy carefully. Naming minor children as beneficiaries can complicate probate.

Disability Insurance

Disability insurance is important for single parents for the same reasons. Your ability to earn income is one of your most valuable assets. If you lose that ability through an injury or illness, your family could face financial hardship. Many people don’t think they’re likely to become disabled, and they don’t think disability insurance is worth the money. However, disability is more common than you may think. According to the U.S. Census Bureau, nearly one in five Americans will become disabled for a year or more before the age of 65. Social Security data predicts that one in four 20-year-olds today will be disabled for more than three months at some point in their working lives. Women face an even higher probability of becoming disabled because of pregnancy-related conditions or female-only cancers. Even if you work in a seemingly safe environment, you may still need disability coverage for a debilitating illness—illnesses account for 95 percent of disability claims, according to the 2011 Long-Term Disability Claims Review, conducted by the Council for Disability Awareness.

Keep in mind that “disability” may be defined differently depending on which policy you choose—some cover you if you’re unable to continue working at your current occupation, while others will only pay benefits if you’re unable to work at all. Work with an insurance broker to determine the proper coverage amount to purchase. Another thing to keep in mind is the amount of coverage. You may already have some form of disability insurance through your employer, but again, this may not be enough. Most policies aim to replace 50 to 70 percent of your income, but you should work with an advisor to determine the coverage you need.

There are two types of disability insurance available, and it can be smart to get both kinds for full coverage:

Short-term disability policies have a waiting period of up to 14 days with a maximum benefit period of no longer than two years.
Long-term disability policies have a waiting period of several weeks to several months, with a maximum benefit period from a few years to the rest of your life.
Medical Insurance

If you have medical insurance through your employer, you may already have your child covered under your plan. If you’re divorced, your child may instead be covered under your ex-spouse’s plan. This is typically determined during the divorce proceedings, and usually the custodial parent becomes responsible for the child’s medical insurance.

You may want to consider seeking an individual medical insurance policy for your child if you and your ex-spouse don’t have an employer-sponsored plan available. Both you and your child should be covered, because a medical emergency can come out of nowhere and completely wipe out your savings. Look for special kids’ policies, which should be cheaper. If you cannot get coverage from an employer-sponsored or individual plan, you may qualify for Medicaid or various state-run programs instead.

When it comes to insurance, it’s better to be safe than sorry. Single parents especially need to insure against as much risk as possible because there isn’t a second parent or a second income to help make ends meet. Make sure you and your family have adequate coverage so you won’t have to worry so much about all of the things that could go wrong.
Courtesy of Zywave LP, an entity unrelated to HollandStivers & Associates LLC. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. HollandStivers & Associates LLC does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues.