Life Insurance and the Single Parent
Pat does not currently receive any financial support from another parent and there wouldn’t be any upon her death.
Her sister and brother-in-law are her children’s legal guardians and would move into her house if she died. Pat felt that their income combined with her children’s estimated Social Security Survivor Benefits would be enough to provide for childcare and basic monthly expenses as long as her debts were paid.
Debt Payoff and Savings
Pat has a mortgage balance of $170,000 and student loan debt of $40,000. In addition to paying off these debts, she wants to provide another $50,000 to pay for final expenses and set up a ‘Rainy Day’ savings fund.
Her executor would need $260,000 to make those arrangements.
Current Available at Death
If she added the proposed life insurance benefit of $500,000 to her current group life insurance policy of $100,000 and her savings of $60,000, that would make $660,000 available at her death.
Subtracting the total cash needs at death of $260,000 from the $660,000 available at her death, there would be net cash available of $400,000.
Pat is comfortable that $400,000 would be enough to fund her children’s educations.
Based on her financial goals, Pat believed purchasing an additional $500,000 of life insurance was the right amount for her.
But the right amount of life insurance for other single parents may vary significantly depending on:
- The presence of a second parent
- Higher monthly income need for basic expenses including full time child care for pre-school age children
- Proceeds from the sale of the house
- Higher or lower personal debt and education fund goals
- Higher or lower current life insurance coverage and savings
- Special Needs
- Charitable Gifts
A second consideration for single parents is choosing the proper life insurance policy beneficiary for the distribution of the life insurance benefit to minors. It is prudent to seek legal counsel to select legal guardians and an executor and to assure that the proper legal documents are in place for the estate settlement.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2021 Advisor Websites.