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If you're divorced, widowed or a single parent, the financial responsibility of supporting your children can feel even more significant. If you're the sole income earner in your household, what happens if your income goes away?
Life insurance could help protect your loved ones if the unthinkable or unexpected happens. If you're looking for more information on life insurance for single parents, here's what to consider.
Why Consider Life Insurance As a Single Parent?
Whether your household relies entirely on your income for everyday expenses or if you're a single parent that shares financial responsibility with a co-parent, life insurance can help provide additional financial protection for your family if something were to happen to you.
This might be particularly important to you if your children are young, as you're likely covering expenses such as food, shelter, clothing and health care costs, as well as saving for future expenses like college. If you died suddenly, a life insurance policy could potentially relieve some of this financial stress by providing a death benefit — a cash payout — to your beneficiaries upon your death.
Even if you appoint a guardian in your will, life insurance might help this guardian cover the costs of caring for your children, helping make sure that their short- and long-term financial needs are taken care of.
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The Different Types of Life Insurance
Term Life Insurance
With term life insurance, you get coverage for a set period of time. For example, you might choose a 10- or 25-year policy. Because term life insurance only provides coverage for a defined time, your beneficiaries will only receive benefits if you die during the policy term.
Term life insurance can be less expensive than whole life insurance because an insurance company doesn't have to cover your entire life. However, you may have the option to renew or convert the policy to permanent life insurance.
Keep in mind that if you convert your policy, an increase in coverage is subject to new underwriting. If your policy has renewed to annual renewal term rates, no conversion is allowed.
Whole Life Insurance
Whole life insurance provides life insurance coverage that never expires as long as premiums are paid. It may also include a cash value component that you could borrow against before you die.
Keep in mind that a loan could create an income-tax liability, be subject to interest, reduce the cash value and death benefit, and cause the policy to lapse. A life insurance policy needs to be funded properly and may take years to accumulate unless a large premium is paid up front. Withdrawals may be subject to charges, withdrawals of taxable amounts are subject to ordinary income tax, and, if taken before age 59½, may be subject to a 10% IRS penalty and interest is charged on loans.
Universal Life Insurance
Universal life insurance coverage can last your entire life as long as premiums are paid and it's managed correctly. Typically, when you first buy your policy, you pay enough to potentially build up cash value within the policy itself.
The design of universal life insurance can give you more control over how you manage your policy. When you have more income, you can pay more into the policy, and when your budget is tight, you can reduce your premium — though you'll want to ensure there's sufficient cash value to cover your monthly charges and additional payments may need to be made to keep the policy in force.
Deciding What's Right for You
Life insurance for single parents is one way to help with your family's financial security. Deciding between term, whole and universal life insurance will likely depend on your budget and your family's financial needs.
If you don't know where to start, consider using a life insurance calculator to determine how much coverage you may need. You could also speak with a financial representative for more guidance on your life insurance options.