The rise of the single parent
The number of single parents has tripled over the past 40 years resulting in one quarter of families in the UK being lone parent families.
As a single parent life can be hard; you are solely responsible for your childís developmental and emotional growth as well as their financial stability. Money can be tight at the best of times and with the cost of living rising significantly, it can make it even more difficult to live on only one income.
But what if that income were to be taken away?
Future financial stability for your children
In the event of your death, your child would not only be left without the emotional support of a parent, but also without the financial backing you have previously provided. It doesnít bear thinking about how detrimental this can be to the future of your child.
For example, property is one of the most valuable things you will leave your children upon your death. However, if you were to die without sufficient cover in place, the mortgage repayments will not be made and therefore the mortgage would default.† This would result in the property being ceased by the authorities, not only leaving your child without a home but also without the future inheritance of your property.
The best way to ensure the future financial stability of your child, should the worst happen to you, is to have your wishes set out in a will and to secure adequate life insurance.
Life insurance for single parents
Generally speaking, taking out life insurance for single parents is no different to what it would be if you were taking out a single policy under any other circumstance (married, not a parent etc.). You simply determine the cover you require, provide all the relevant information for the application, continue to make premium payments for the term of your policy and if you die during this period, the allocated payout will be made.
Types of life insurance
There are three common types of life insurance single parents are likely to consider; level term life insurance, decreasing term life insurance and family income benefit.
Both level term and decreasing term life insurance provide a lump sum pay out upon your death, but whilst the payout sum of level term life insurance holds its value during the term of the policy, the payout sum of decreasing life insurance reduces over time. For this reason, decreasing life insurance is ideal for covering the remaining balance of a mortgage or other large debt, whereas level term life insurance is good for covering funeral and legal costs or providing an inheritance to your children.
Family income benefit differs in that, rather than providing one lump sum payout upon death; tax free monthly payouts are made for the remaining term of the policy following your death. Therefore, the earlier into the policy you die, the more monthly payments your beneficiaries will receive. This policy type is ideal for single parents looking to provide ongoing support to cover the costs of daily living.
Affording monthly premiums
Only 42% of single parents have life insurance. This is predominately due to the monthly cost associated with having such cover in place, but contrary to popular belief, life insurance doesnít have to be expensive. There are a huge range of insurers available making it essential to ensure you achieve the most cost-effective solution to suit your needs.
As a single parent, time can also be a stretch, so using an independent insurance broker will allow them to shop around on your behalf and find the most suitable quote to fit within your monthly budget.
Writing your policy in trust
If you are a single parent and are looking to obtain life insurance, it is likely your children are of a dependant age. Therefore, it is unlikely if you were to die during the term of your policy that they would be in a position to manage the payout which is made.
To avoid complications caused by this, you can have your life insurance policy written in trust. This involves specifying a number of trustees who will oversee the payout, ensuring it is allocated where you desired and if required any money/property is kept secure until your children are of an age they are able to receive and manage it themselves.
Writing your policy in trust not only means you will have more control over where the payout is allocated, but it also avoids the monetary sum becoming part of your estate, therefore minimising the amount of inheritance tax your children would pay. It would also increases the speed at which the payout is made as lengthy probate processes can be avoid.
Prepare for the future now
The important thing to remember is that as a single parent, if the worst were to happen to you, your child would not only be left with an emotional, but also a financial void. Having adequate life insurance in place can take away this risk and ensure the future financial stability of your loved ones. The monthly cost may deter you at first, but affordable premiums do exist and the potential consequences for your children are far worse.
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