What Does This Article Cover?
One of the fastest growing segments in America is seriously underinsured.
A review of 2000 US Census data reveals a dramatic rise in single father households nationwide. With a growth rate of 61.8 percent over the 1980 Census, the number of single father households increased to nearly 2.2 million. That is more than double the growth rate of single custodial mothers in the same period.
Single fathers often have to carry the entire financial burden for their family, whether they are the sole parent or provide support through a divorce settlement.
Among their many responsibilities, single fathers often overlook their need for life insurance. Should their life be cut short, life insurance proceeds may be the sole means of financial support for their children. Unfortunately, nearly four in 10 single parents do not own any type of life insurance. Of those who have coverage almost two thirds believe they should own more life insurance, according to a 2003 article available on parentswithoutpartners.org, entitled "Single Parents, The Necessity of Life Insurance" by David Woods, president of the Life and Health Insurance Foundation for Education. The typical two-parent household has $250,000 in life insurance coverage, compared to just $60,000 for a single parent household.(Please note clicking on the above link means you will be leaving this Web site and you assume total responsibility and risk for your use of the site(s) you are visiting. This information being provided is strictly as a courtesy)
According to the 2001 US Department of Agriculture Expenditures on Children by Families Report, it costs an average of $165,000 to provide a child with the necessities of daily living from birth to age 18. If a college education is in the plans, consider that a public college will cost an average of $28,000 by 2010. Consider that according to the College Boards annual tuition, fees, room and board, study, for the 2003-2004 academic year the average total charge at a 4-year public college is $10,636.
For many single fathers, the financial strain of supporting a household on one salary may put life insurance far down on the list of financial priorities. It shouldn't be. Life insurance is the foundation of a sound financial plan, which can help ensure that the dreams you have for your children, including a comfortable upbringing and a college education, will be realized, even if you can't be there.
While most people acknowledge the need for life insurance, many hesitate to act, especially when confronted with questions such as, "How much insurance do I need?" and "What type of insurance is best?" They have other concerns as well, such as naming beneficiaries and establishing trusts?all of which can make the entire process seem overwhelming.
The amount of life insurance you need depends on several factors including the number and ages of your children, your income level, the amount of debt you have, and the value of your assets. A general rule of thumb is to purchase five to 10 times your annual income.
Note that while there are Web sites that can help you figure out how much insurance you'll need, they are limited to performing calculations based on the numbers you provide. The purchase of a life insurance policy is a very personal and frequently emotional decision. Often the best way to determine your individual insurance needs is to talk to a professional life insurance agent. Ask friends and relatives as well as any professionals you work with such as your attorney or accountant, for the names of insurance professionals they work with and might recommend. When you meet an agent, be sure to ask about their experience, the companies they represent, the clients they work with most often, and types of policies they offer.
Types of Insurance
Term Life Insurance
Term life insurance is pure life insurance protection. It usually provides affordable protection, often with a premium, for some period of time. If the insured should die while the policy is in force, the face amount is paid to the named beneficiary. At the end of the premium period, the insured can renew the coverage at a higher premium. The premium for term insurance is initially lower than a comparable whole life policy (see Permanent Life Insurance, below); however, it can increase at the end of the premium period. This initial lower premium usually makes term insurance an ideal choice for individuals with a temporary need for life insurance protection. There are many types of term polices available, including 5 Year Term, 20 Year Term, Increasing Premium Term, Term to Age 90. Each has different provisions and premium periods.
Permanent Life Insurance
Permanent life insurance protects you for your entire life, from the day you purchase the policy until you die, as long as you pay the premiums. One type of permanent insurance is called whole life. It is insurance that accumulates cash value and is eligible to receive dividends, although dividends are not guaranteed. You can borrow cash value for a down payment on a home, to help pay for your children's education, or to provide income for your retirement. (Note: Borrowing cash value from your policy requires the payment of loan interest and will affect your total policy values by lowering the ultimate death benefit.) In addition, if you decide to stop paying premiums and surrender your policy, the guaranteed policy values are yours.
Once you have been approved for the coverage, a permanent policy cannot be canceled as long as the premiums are paid. Regardless of your health, the insurance will remain in force for your life. Despite higher initial premiums, cash value life insurance can actually be less expensive than term in the long run. Most permanent policies are eligible for dividends, which are not guaranteed, if and when they are declared by the insurance company. Many insurers offer the option to apply current and accumulated dividend values towards payment of all or part of the premiums. If dividend values are sufficient, out-of-pocket premium payments may end or be reduced after several years, yet coverage can continue for life. This arrangement is based on dividends, which are not guaranteed. If dividends decrease, additional out-of-pocket payments may be necessary.
So while premiums must be paid under both the permanent and term insurance plans, the long-term, out-of-pocket cost of a permanent life insurance policy may be lower compared to the total cost for a term policy. In addition to whole life there are other types of permanent insurance including universal life, modified premium whole life, and variable universal insurance.
Naming a Beneficiary
When you purchase a life insurance policy as a single father, you must choose your beneficiary(ies) carefully. Naming minor children as beneficiaries can create problems. Insurers generally won't make settlements directly to minors. The probate court handling your estate will require that a guardian be appointed to manage the insurance proceeds and may also require that a trust be set up to receive the proceeds and to protect their interests after your death. Again, speaking with a life insurance professional may be an effective way to determine your best options.
If you already have an estate plan, be sure to update it. Even with a well-established estate plan, you should have a will that names your heirs and specifies guardians for your children.
Other Concerns for Single Fathers
In addition to life insurance, single fathers have other financial concerns, including making sure children have health insurance. The 2001 US Census found that children in single father households were less likely to have health insurance than single-mother households or two-parent households. Single fathers should also check with their tax professionals to make sure they are taking advantage of exemptions available to them.
In general, single fathers should take the time to review and reorganize their finances. During this review:
- Read your credit report to make sure you receive the best possible rating.
- Re-title the ownership of all assets in your name if they were previously held jointly
- Be certain you're contributing as much as possible to 401(k) and other retirement or education accounts
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|Why Single Fathers Need Life Insurance|