Most women need life insurance. Not just moms. Not just working women. Not just rich women. A little Term Life insurance for women can be a safety net, for her family or her community.
Before we dive into the details, a caveat. I don’t sell insurance. I never will. I think life insurance is super important, and I support life insurance agents and brokers, but I don’t have a financial stake in this advice at all.
Why Do Women Need Life Insurance?
Women Are (Far) More Likely To Support Dependents
Very simply, women need life insurance more because women are far, far more likely to support dependents than men. This could be their children, either as a married person or as a single mom. It could be their parents or their partner’s parents. It could even be extended members of your family.
And this margin of female responsibility is not small – 80% of single-parent households are led by women (2020 Census, so probably a low estimate).
Women Earn More Than Ever Before
One of the main ways to calculate your need for life insurance is the “income replacement” method – you purchase a policy that will replace your income. While it is still important for stay-at-home moms to purchase life insurance, it’s critically important for income earners.
Life insurance may not replace your lifetime income, but it can replace your income for a few years. During those first few years, costs will be higher as your family transitions into a world without you and your paycheck.
Women Who Stay At Home Provide Valuable Economic Support
If your main role is Chief of Domestic Operations, you have as much need for Life Insurance as a working woman – maybe more. You’re a driver, a cook, a cleaner, a caregiver, a decorator, a personal shopper, the executive assistant to your entire family, and much more. All your unpaid labor will somehow have to be replaced.
Sure, your family will pick up the slack, but probably not permanently, and not without cost. Funding these expenses through a term life insurance policy not only makes your family’s future life easier, but it’s also a good exercise to remember the value of the work you do every day. We’ll talk about how to estimate it below.
Every Woman Has Different Life Insurance Needs
Life insurance has the word “Life” in it because it’s not a one-size-fits-all kind of thing. Every woman’s life needs a different life insurance approach.
Life Insurance For Working Women – Primary Or Secondary Earner
For working women, whether you are the primary caregiver or not, it’s easy to calculate your life insurance needs. The first way is the income replacement method we covered above. Choose the number of years you would want to replace your income for. This could be the number of years until your kids are out of college, or the time you plan to support your parents or another family member. Then you multiply the number of years by your most recent or most representative income.
You should also include Big Ticket items that you would expect to fund. For instance, your contributions toward retirement or contributions to college for your children. This would also include benefits your employer pays on your behalf, such as the full cost of healthcare. (Your family will be entitled to COBRA, if your employer qualifies, but it requires paying the employer portion).
Working women should also include the replacement cost of their unpaid labor, just like a stay-at-home mom would. For instance, if I were to pass away, my husband would spend more on dog walkers, babysitters, probably an assistant, and interior design. But he would save on Sephora. 😉
Life Insurance for Stay-at-Home Moms and Family Caregivers
I got a little heated about this one because we all know about the extreme discounting of women’s labor. Other personal finance experts (cough, dudes, cough, cough) make recommendations that would underfund your life insurance. In fact, traditional financial training doesn’t even include this. ERR ON THE SIDE OF BUYING MORE THAN YOU THINK YOU NEED. There’s very little risk in overfunding term life.
If you are a stay-at-home mom without a life insurance policy, I strongly encourage you to research and calculate the value of all the labor you do for your family and in your home. Even if you don’t fully replace the value of the labor, anything you can set aside will be helpful. This will be particularly true in the months and years right after your death. That’s a time when there is a lot of upheaval in a family and the chief of domestic operations would otherwise be working overtime.
Life Insurance for Single Moms
Life insurance needs for single moms are greater than those for working moms or stay-at-home moms because your passing implies much bigger things for your family. A change of custody for the kids, a household move, possibly a total loss of income, and more. It’s a major transition. Additionally, 1 in 3 Millennials and GenXers support their parents, so you do not just figure reconfiguring your kid’s life.
If your children’s father is still in the picture, has partial custody, or pays child support, you also want to make sure he carries life insurance and names you or a trust for the children as the beneficiary. You’re also going to want regular proof that he’s paying the premiums and that the policy is still in force. One way to do this is for him to work with his insurance agent to give you limited access to the policy. This simple document can be administered by the insurance agent.
If requesting all of this from your ex sounds daunting, consider this approach: use the same agent, and frame it as a mutual commitment to the kids. You’ll give him informational access to your policy and he will do the same. Your work together on making sure the kids are provided for if one of you passes away.
I really wish everyone’s divorced financial situation were that simple, but I know it’s not. As the daughter of a single mom and a disappearing dad, I support you in doing what you need to do to provide your children Financial Security, even if it’s unpopular with the people around you. The kids come first.
Life Insurance for Single Women
You, single ladies, are not off the hook! Life insurance funds a lot of things and first and foremost, the cost of your funeral, Lawyers and accountants to do your last paperwork, and other transitional costs.
Also, if you’re not yet supporting your parents, you might be in the future. A small term life policy that benefits them is a pretty cheap way to cover their needs… without even having to tell them. It’s less than ideal to leave money to someone and not tell them, but it’s a reality for many women. It took a solid five years to get my mother to talk about her retirement needs. There’s often a need BEFORE there’s a readiness to have the conversation. Term life insurance is an easy way to close that gap and can be altered when you get to the conversation.
Additionally, life insurance is a fantastic way for grandmas and aunties to create generational wealth!
Life Insurance for Transgender Women
Because life insurance involves a medical exam, there’s a whole extra layer of complication for transgender women. Typically, life insurance companies require applicants to declare a gender and assign coverage based on the gender assigned at birth, which doesn’t leave gender non-conforming or binary people a lot of great options. transgender women on the other hand have a little more protection.
First, Life insurance providers cannot jack up your rates or deny you coverage if you are transgender, have gender confirmation surgery, or take hormones.
Your application may be delayed until after surgery and some will underwrite you based on the gender you were assigned at birth. Shop around!
Transgender women and men, and non-binary and gender non-conforming people are always welcome at AskFlossie. If you have anything to add to this section, please drop me a line. We always want to learn more.
Factors That Affect The Cost Of Life Insurance For Women
Many kinds of insurance are calculated based on credit score or income. Kind of like health insurance comes down to mostly your gender, age, and health issues, life insurance also has some special considerations around pregnancy and illness that disproportionately impact women.
Life Insurance Is Cheaper For Women Than Men
The number one thing that impacts the cost of life insurance for women, is the fact that we’re… Women. Because women have a longer lifespan, on average, we’re more likely to outlive the term of Life Insurance and never use it. That’s great for the insurance company – they are a little more likely to get the premiums from women without the payout. So they give us a bit of a deal in exchange. However, it’s actually far more likely you will allow your life insurance to lapse than you will outlive it.
To that end, make sure that your policy is not quoted on a unisex basis, as that will raise the rate.
Prices Increase As You Age
As you get older, and more likely to die, the cost of insurance increases. Not a shocker. This is partly because you’re more likely to die and trigger a payout, and partially because as we age, we have more health issues. Chronic illness, ongoing medical issues, or generally poor health can increase the cost of your insurance.
You Can Apply for Insurance While Pregnant
The United States has the highest maternal mortality rate in the developed world, and because of that, it’s virtually impossible to get a life insurance policy in the third trimester of your pregnancy. First trimester applications are commonly approved, but later applications are typically delayed until after the baby is born.
We IVF moms might also have a hard time getting approved or might have to pay more. Because IVF isn’t expensive enough.
Breast and Gynecological Cancers
Although women are generally less likely to get cancer, we are more likely to die from it and there are cancers we are more likely to get – breast, ovarian, and uterine cancers.
You may be able to get life insurance if you have cancer, but options and rates vary depending on your diagnosis and treatment. If you’ve had cancer in the last four years, you may not qualify. Women under age 50 may be able to get some coverage through their employer via a group life insurance policy. The limits are lower, but as we discussed above, there is no medical exam.
What Type Of Insurance Do Women Need?
Term life. The longest Term you can get (30 or 40 years, depending on your age).
What about whole life insurance? Whole life is more expensive and more complicated than Term life, and we don’t recommend (or own) whole life insurance. 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, not great)
- There are a lot of fees associated with it
- It’s expensive – the premiums are much higher than term insurance
- Insurance brokers get much higher commissions on it, because the premiums are higher. Investopedia has a great breakdown of how this works: https://www.investopedia.com/articles/personal-finance/080514/what-your-life-insurance-agent-makes-you.asp
Whole life is a good tax strategy for helping wealthy people shelter gains and fund Estate Tax. Don’t have $11 Million? You can skip it.
How to Add Life Insurance To Your life
I added a million-dollar policy to our financial picture in ten minutes. It’s easy!
How To Afford Your Life Insurance Policy
Fortunately, term life is generally inexpensive, so if your budget is tight, you shouldn’t have to trade off a lot to make room. It should be a top priority, like your emergency fund.
There are two ways to pay: one lump sum every year, for which I recommend you use a sinking fund. Alternatively, many insurance companies offer monthly payments, and sometimes an auto-pay discount. It may be slightly more expensive to pay monthly, but not much. My car insurance is less than $10 difference per year when paid monthly.
Personally, I prefer paying monthly just to even things out.
How To Buy Life Insurance
There are a ton of ways to buy life insurance.
You can max it out through work. Many employers give you the opportunity to purchase additional life insurance on top of the coverage they provide. The rate is usually very good and you usually don’t need a medical exam. There are some drawbacks (see below).
Many professional associations, unions, and other organizations have access to preferential term life rates. Check with any organization you’re affiliated with to see what they have access to.
The internet has made this very simple. I have used bestow.com, which may not have been the best rate, but took all of 10 minutes. Policygenius.com is also a good source. Both make money by generating leads for insurance companies and allow you to price options against each other.
Don’t Assume Coverage You Have Through Work Is Enough
Employers offer group life insurance because they get a tax deduction on any amount up to $50,000 per person. It’s a very inexpensive perk to offer and for employees a cheap way to purchase insurance that doesn’t require a medical exam. It’s a great place to start and a cheap way to max out.
However, there are some drawbacks:
- You can’t always take your coverage with you when you leave your job.
- The death benefits tend to be smaller than you could buy privately, such as 2x your salary.
- They may not cover your spouse or partner.
- You don’t have control over the company that provides insurance, although they tend to be reputable.
Don’t Buy Life Insurance for Your Kids
Life insurance agents will disagree with me on this, but I am “no” on this. The only situation I can think of where you would want life insurance on your child is if you are a dependent parent, meaning that your child provides most or all of your support. In this case, you have what the IRS calls economic interest, which means that you can take a life insurance policy out on that person.
Otherwise, your six-year-old does not need life insurance. There are better ways to build wealth, and if you lose your child, you and your family will find other ways to pay for the funeral. You will have bigger things on your mind if you can think at all. The thing that will not change is the economic outlook of your family because your six-year-old did not have a job. I pray but no one who has gotten this far in this post ever experiences this kind of loss.
What about if your child has an income? Do you think Britney’s dad has life insurance on her? I bet he does. If you have a strong economic interest in your young child, the answer is therapy, not life insurance.