Getting life insurance for single moms is relatively simple and inexpensive – you go to a website, put in how much coverage you want and for how long and you get a policy. Took me 20 minutes. Really. But how much you need?
Term life insurance is critical for building generational wealth and giving your family almost immediate cash flow during their transition to a new life.
And I know you’re busy, and have about 45 seconds to figure this out, so let’s dive right in.
Life Insurance For Single Moms – The Basics
I wrote a complete guide for single mom life insurance last week. The quick takeaways:
- You need term life insurance, both to cover costs and to build generational wealth
- Term life is quick, easy, and inexpensive
- Your kids can inherit your debt, including final medical expenses
- There are a lot of “transitional costs” between when you die and when your kids are settled in a new life
- Even if you want to be cremated and dumped in the bay, funerals are expensive
- Unless you are Kris Kardashian, you do not want whole life. It’s a complicated investment product, not insurance.
- Don’t take insurance advice from an insurance salesperson
- Most insurance policies lapse due to non-payment, so set up autopay from your bank, not your insurer, and ask for help paying premiums if you need it.
Life Insurance For Generational Wealth
Pretty sure you know the original point of life insurance for single moms is to cover costs, but it is an extremely good way to build generational wealth. Extremely. Because life insurance premiums are much cheaper than the death benefit payout, you can pass on a lot of money you don’t have. Here’s an example (real numbers):
- I have a 20 year, $500,000 policy that costs $50/month.
- My total cost will be $12,000.
- My heirs receive half a million dollars.
If I die at the very end of the term, $12,000 of my family’s new wealth comes from my contribution premiums, and $488,000 magically appears from the insurance company. It is wealth my kid did not previously have.
I put this first because we too often focus on life insurance to cover costs. Yes, that’s important, but for single moms life insurance is a powerful game-changer. After you figure out what your kids will need, boost your coverage or term to increase their wealth. Now, let’s figure out the baseline.
What Are the Ages of Your Children Now?
How old your kids are helps determine how much life insurance coverage you’d need to acquire. The younger your kids are, the longer term you’ll want.
A term life plan sets coverage for a certain period of time. You could make this extend for just 10 years, or go all the way up to 30 years. The term you choose should cover at least until your kids are 22, and longer if you are using the policy to build generational wealth.
What Do Your Kids Cost?
What does it cost you now to provide for your kids? How will that change between now and the end of the term. This is where you want to be comprehensive. Include
- Costs to care for and maintain your kids, similar to what you pay every month in rent, food, etc.
- Costs for education, after school programs and college
- Include housing costs, if you think the guardian might need to move
- Other special expenses you were hoping planning to help with, like a wedding or house
- Add in extra costs for childcare and other areas where their guardian might not have as much help
- If your child has special needs, that will change the math as well
Similar to the wealth building opportunity, these costs also present an opportunity to level up. It can help you pay for things you might not be able to afford otherwise, because the premiums you pay are less expensive than, say, college.
How Much Debt Do You Have Right Now?
Some debt is inherited. Full stop. You don’t want to leave your grieving kids and their guardian with debts they can’t manage. Here’s how to tackle it!
Like everything with the state planning, debt inheritance varies by state, so double check your state and situation. Your “estate” would typically settle your outstanding debts. In other words, any assets you held at death will go toward paying off what you owed at that moment.
However, if your estate can’t cover it, it’s possible your kids will inherit the debt.
- Anything you cosigned for, or debt on a shared account will definitely be inherited
- Debt from home equity loans is generally inherited.
- Medical debt can vary. Its inherited by default because lots of people die in the hospital, but may be waived. Check your state details, talk to the billing department and do a little research.
- Probably won’t see hospital expenses coming. I factor in a little buffer.
Funeral, Transitional, and Legal Costs
I cover this pretty extensively in my Complete Guide to Life Insurance For Single Moms, so check that out. But remember, this change is expensive, may require moving and travel, and many other “unusual expenses”. Think it through.
What Would Life Insurance Do for Your Guardian?
You absolutely should designate a guardian for your children. This takes it out of the hands of the court to make that call. Once you know who the guardian is, look at their financial situation. If they are going to live with a wealthier relative, you might not need as much coverage. On the other hand, if you are leaving them with a grandparent on a fixed income, you might want to beef up your policy.
Even so, everyone has their own financial challenges, and they’re usually hidden, so it’s best not to gamble. Even if you are leaving your children to Daddy Warbucks, leave an insurance payout. You never know what skeletons are in the financial closet. Life Insurance for single moms is skeleton repellant!
It’s not the only thing we think about but we have a lot of resources on Life Insurance for Single Moms on our Blog. Sign up for early access to the AskFlossie community where you can meet other single moms going through similar challenges of finding the right life insurance policies.