I have a young son. To be honest, thinking about leaving him behind…. it’s incredibly heavy. So before we dive in, I want to welcome you here. Life insurance, for single moms, is a heart-wrenching topic, but my hope is that together we can approach it confidently and securely. High five. Let’s do this!

Important note: I don’t sell insurance. Life insurance is an important part of financial planning. If someone is giving you advice on insurance as a retirement or estate strategy, always ask if they sell it. Insurance agents work on commission, and their commission varies from product to product.

What Is Life Insurance, Really?

Life insurance is a contract between four parties:

  1. the owner (most likely you)
  2. the insured person (also probably you)
  3. the beneficiary (the person or people who get the money)
  4. the insurance company

There are some complex ways to structure life insurance if you are a small business owner or rich as hell. This post is not for that!

We’re going to assume you are a single mom, considering a life insurance policy for your own life, to benefit your kids and other dependents. For the most part, you want term life insurance. Whole life insurance for single moms like the Kardashian Sisters.

Do Single Moms Need Life Insurance?

The short answer is yes. The only reason you wouldn’t need it: if you have substantial assets that would turn into cash immediately if you died and cover the needs of your dependents for many years. Here’s why:

Your Kids Can Inherit Your Debt

“The only [wo]man who sticks closer to you in adversity than a friend is a creditor.” Sad, but true.  Your debts don’t all just disappear when you die, some get passed on to your children until they’re eventually paid off. Here’s a quick synopsis:

  • Like everything with the state planning, varies by state.
  • A deceased person’s estate will typically settle their outstanding debts. In other words, the assets they held at the time of their death will go toward paying off what they owed when they passed.
  • However, if their estate can’t cover it, it’s possible your kids will inherit the debt.
  • Anything you cosigned for, or on a shared account, your estate will definitely be on the hook for.
  • Debt from Home equity loans is inherited. Another reason why they’re not a great source of funds.
  • Medical debt can vary. It’s often waived, but can be inherited so check your state details and do a little research. Your estate may have to work to get it waived.

“Transitional Costs”

When someone dies, their dependents experience a lot of personal and administrative upheaval. Upheaval also generally comes with a pricetag. Here’s an example: Sheila passes away, leaving behind Rose and John, her two kids who are still at home and in elementary school. Their dad is not in the picture. Sheila also helps support her elderly mom, who lives in a retirement community.

  • Someone needs to care of the kids immediate. That person might not be local.
  • Any bills coming in this month and next month need to have cash available in the next few weeks. This could be rent, mortgages, utilities, or any bills Sheila was paying for her mom.
  • If the kids need to move in with a family member, there are moving costs

Every situation will be different, but you get the picture. Stuff comes up. A life insurance policy creates funds that are available immediately to help with the transition.

Funerals Can Be Expensive

Personally, I want to be cremated. On average, in the US, that will cost $1650, before you get to anything fancy. And that can vary WIDELY.

Funerals run between $6,000-20,000 on average. That is a lot of dough.

Final Medical Expenses

If you spend any time in the hospital, hospice or long term care before you die, those bills will still need to be paid. As, I mentioned above, in come cases you can get them waived, but by default, they will be inherited.

How Does Life Insurance For Single Moms Work?

Term life insurance is pretty simple. You purchase a policy that covers a fixed term, perhaps the number of years between now and when you think your kids will be firmly established. (Read more on how much life insurance single moms need.)

Every year, you pay a premium on that policy, like with your car or homeowners insurance. When you die, the beneficiaries get paid. Straightforward.

Here’s the first catch: minors can’t be beneficiaries, which is another reason it’s so important to name a guardian for your kids. If you name them (which you may not even be allowed to do), their guardian will get the money. A little forward planning on who you want to be in charge if you pass away can help get the money into the right hands quickly. For me, it’s my sister in law.

Here’s the second catch: if you die within two years of purchasing the policy, your beneficiaries might only get your premiums. Read the fine print

Finally, if you outlive the term of the policy, that’s it. You don’t get your premiums back. On the flip side, you’re still alive. This is also why term life is cheaper when you’re younger. The insurance company makes money by betting enough people survive (or in actual fact cancel) their policies, so they can afford to payout the ones who die in term.

How Single Moms Should Think About Term Life Insurance

Term life is relatively inexpensive, which makes sense. It’s considered a temporary policy that only covers the specific terms. Once your kids are old enough to support themselves, and you have paid off debt they might inherit, you may not need a life insurance policy anymore.

A good rule of thumb is to look at what costs you will have between now and the end of your working life, less saving for retirement (can’t retire if you’re dead). This could include:

  • Costs to care for and maintain your kids, similar to what you pay every month in rent, food, etc.
  • Costs for education and other special expenses like a wedding, you were planning to help with
  • It’s good to factor in extra costs for childcare, because their guardian might not have as much help
  • Any debt or outstanding liabilities.
  • The specific costs associated with your death, mentioned above

Use Life Insurance to Build Generational Wealth

This is the bonus you get for reading this far: Life Insurance can also help build generational wealth. Because it’s much cheaper than its 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 family did not previously have.

Don’t feel bad for taking the insurance company’s money. It’s kosher. They have spread their risk over a lot of people and have A LOT of data to know how many will die while the policy is active.

Based on your circumstances, it may be a boost for your family to purchase a longer term of insurance than you need to cover costs. Your adult children can help contribute to the premiums. It’s an efficient way to lift a generation. 

Should You Consider Whole Life Insurance?

Whole life is more expensive and more complicated. Like The Budgetnista, covers in her excellent book Get Good With Money, we don’t recommend whole life insurance for single moms, or for 99% of people. Why?

  • It’s not insurance. It’s a complex investment and retirement planning product
  • As an investment, the returns are low (less than 2% on average, which sucks)
  • It’s expensive
  • Insurance brokers get pay much higher commissions on it, so its marketed LIKE CRAZY, but not because it’s awesome

About the only thing whole life is good for is helping wealthy people shelter their money from tax gains, after they have exhausted all other options.

Is It Hard For Single Moms to Get Life Insurance?

No, it’s super easy. But it’s hard to KEEP life insurance. If you’re healthy and not a smoker, getting a policy takes 20 minutes at Bestow. It’s not your cheapest option, but its fast.

In terms of getting it, if you have medical issues, you may have fewer options and higher premiums than a healthy lady. Some require you to get a medical exam. I went with one that doesn’t and didn’t shop around. Why? I’m a mom and I’m busy as hell. The “experts” who say “go shop for life insurance in person and make sure to get an exam” are full of shit. The greatest risk to your life insurance, is you.

Most term life insurance policies lapse before they are paid out. That’s how insurance companies make money. People lose track of them. Financial crises happen and paying the life insurance isn’t as immediate as keeping the heat on. 15 years in, people lose or change perspective.

Make paying it a priority. Set up autopay from your bank, not the insurer, and keep a grid of your insurance.  If you need help paying it, ask for help. Life insurance isn’t just an important safety net, it’s an important wealth builder.

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