Single Parent? This Is How Much Life Insurance You Need

The best way to prepare for the worst is by investing in affordable life insurance that can cover your family’s needs for years down the line. Figuring out the type of policy you need, the amount of coverage that will sustain your family, and other details is easier than you may think. 
By Kathleen Livingstone
Updated Sep 7, 2022
Single parent life insurance
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Financial stability is imperative for every parent but especially true for single-parent households. Without another parent to shoulder the financial burden in the event of an untimely death, a life insurance policy is a great way to give your family peace of mind and cover their long-term expenses.

Here's everything you need to know to find the right life insurance policy as a single parent:

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Why Do Single Parents Need Life Insurance?

Compared to dual-parent families, single parents with children living in the home represent one of the widest gaps in the life insurance industry. A study completed by Genworth Financial and the University of Virginia found that 69% of single parents with children in the home do not have any form of life insurance, compared to 45% of married parents. It's a common misconception that single parents need life insurance less than married couples. 

However, if tragedy strikes, children in single-parent homes can be more vulnerable to economic problems. After all, there is no second parent to contribute to the family's finances. The best way to prepare for the worst is by investing in affordable life insurance to cover the family's needs for years down the line. Figuring out the type of policy you need, the amount of coverage that will sustain your family, and other details are more straightforward than you may think. 

How Do Life Insurance Policies Work for Single Parents? 

Life insurance policies pay out an agreed-upon amount after a person dies by a covered cause. Two main life insurance categories apply to single parents – term life insurance and permanent life insurance. Both types of life insurance policies generally cover the same kinds of living expenses, such as expenses associated with funeral costs, education, childcare, outstanding debts (loans, credit cards, etc.), household maintenance, and more. Which type is best for you depends on your preferred coverage.

Term life insurance covers you for a specific, agreed-upon time such as 10, 20, or 30 years. Most policies pay between $20,000 and $10 million, and most adults in their 30s or 40s buy policies worth between $250,000 and $1 million.

If you die during the coverage period, the policy pays your family the agreed-upon amount over a designated period. These policies can be very affordable and are the most commonly held type of life insurance. The cost of term life insurance policies does increase as you age, however, so it is more affordable to buy term life insurance while you are younger and healthier.

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Permanent life insurance lasts your entire lifetime. These policies also have an attached tax-deferred savings account, referred to as the policy's 'cash value.' The cash value of permanent life insurance policies can be collateral or withdrawn after certain conditions are met. Permanent life insurance policies are more complicated and more expensive than most term life insurance plans.

Types of Permanent life insurance

  • Whole life insurance - These Plans have fixed premiums and a guaranteed death benefit that will remain throughout the policyholder's lifetime. Whole life insurance policies have a cash value savings component that can be used as an investment vehicle. If you receive a whole life policy quote when you are younger and healthy, you can lock in a cheaper premium that will remain in force throughout the policy.

  • Universal life insurance - These plans offer more flexibility with payment terms, contract changes, and their cash value benefits. Policyholders can adjust their death benefit amount or premium payments if their financial situation changes, or can invest into a cash-value account that gains interest over time.

  • Final Expense Insurance - A type of whole life insurance that offers a guaranteed payout designed to cover burials and funeral costs. These policies are easy to qualify for even for those who are in poor health and are often the most affordable types of coverage. The downside is that if your children are younger, this may not be an option to provide enough coverage for your needs.

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Calculating the Right Amount of Life Insurance for Single Parents

Take these steps to calculate how much life insurance you need as a single parent:

Step 1: Consider a few different factors regarding your family's expected needs. Economic considerations to think about include:

  • Any outstanding debt (mortgage, credit cards, loans, etc.)

  • Costs for primary childcare

  • Housing and eating expenses

  • Education fees 

  • Potential and expected medical costs

  • Transportation needs

  • End of life expenses and funeral costs

Remember to keep in mind how expenses like education will change significantly throughout a child's lifetime. For example, housing is an annual expense, while college tuition will only be a necessity for a few years. Your costs will inevitably include some smaller yearly costs and other more considerable one-time fees. 

Step 2: Calculate annual estimates for these costs and any additional expenses you expect to affect your family in two lists. The first list included yearly costs and the second list comprises rarer or one-time payments. Items on the occasional list should reflect the total cost. University costs on this list, for example, would be added as a one-time cost of $200,000: $50,000 annual tuition and housing X 4 years = $200,000 total cost. If you would like to pay off your outstanding debt (like a mortgage) in one payment instead of gradually over several years, you could also add that cost to the one-time expenses list. 

Sum up each list. 

Step 3: Add up your current assets. This is the amount of money that would be available after your passing if liquidated. When calculating how much life insurance you need, you can subtract this amount from your overall expenses. Include items in your asset list like:

  • Owned real estate property other than your primary residence

  • Financial products like stocks, bonds, etc.

  • Retirement fund payout

  • Savings and checking accounts 

  • Vehicles, boats, etc. 

  • Work-based bereavement compensation

Step 4: Think about how many years of regular care and financing your children would need to grow up if something were to happen tomorrow. Ideally, you'd want to provide at least enough coverage to your family to last until your youngest child graduates from high school or college. For most parents with dependent children at home, this is somewhere between 12 and 20 years.

Step 5: Use this formula to calculate how much life insurance coverage you need: 

[(Annual Expenses X Years) + (rare costs)] - assets = life insurance coverage gap

For example, if your youngest child is five years old, you will most likely want to provide between 13 and 17 years of financial help to your family (average of 15 years). Let's say you have added up your yearly expenses and found that your family needs $50,000 annually to be stable. You also have $350,000 in debt from your mortgage and credit cards and would like to put away an additional $200,000 toward university fees. You've got $300,000 in liquidatable assets.

To get your life insurance coverage gap, multiply the total of your expected annual costs by 15, add your rare costs of $550,000 to find out your total financial need: $50,000 X 15 years = $750,000 total annual expenses $200,000 + $350,000 = $550,000 total one-time, rare expenses $750,000 + $550,000 = $1,300,000 total financial need

Now, subtract your assets of $300,000 to calculate the average amount of life insurance you are looking for: $1,300,000 - $300,000 = $1,000,000 total financial need

In this example, you would need a life insurance policy valuing at least $1,000,000 to give your family 15 years of economic stability. Don't be overwhelmed if the amount seems too high! Life insurance policies can be much more affordable than you may think for millions of dollars of coverage.

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Determine your beneficiaries

After you have decided on the type of life insurance policy and coverage amount that suits your needs, you will need to decide on the person or people that will receive your death benefit. In most instances, life insurance companies are unable to pay a death benefit to minors. In this instance, you will need to appoint a legal guardian to be responsible for the death benefit until your children are of legal age.

Another option is to have an attorney establish a trust for your children. In this scenario, the trust would be the beneficiary, and you can set up guidelines for how you wish your assets to be managed and passed along, and your children can take advantage of your estate right away.

In some cases, a trust can lower the likelihood of your child receiving financial aid. In order to help you determine how you want your death benefit to be structured, reach out to one of our licensed agents.

Finding the Best Life Insurance Quotes for Single Parents Today

Once you've calculated how much life insurance you need, it's time for some policy research. Visit our provider reviews page to compare your options. In just a few minutes, you can compare the pricing and features of dozens of life insurance options that work for your family's needs.

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