Why a life insurance policy is important for single parents
There could be many reasons why you are a single parent. Whether it is due to the death of a spouse, divorce, or being an unwed mother, single parenthood can be a fulfilling yet challenging experience. Not only do you have to singlehandedly take care of all your child’s needs but also be the emotional anchor and financial stronghold at once. Of all the financial planning that you must do as a single parent, the most important one would be to take a life insurance policy.
How life insurance benefits single parents
There is no doubt that the cost of living is rising by the day. Whether it is housing, education, healthcare, entertainment, or just food, you can be sure that your expenses will only increase as the years go by. While it is not a pleasant thought to consider, it is even more important for single parents to consider what would happen to their child in the worst-case scenario of a sudden death. What will their child’s future look like in such a scenario?
Even if you have a good family support system where your child will be taken care of in your absence, you do not want them to miss out on the best education, healthcare, and life opportunities because of lack of financial support. Having a life insurance policy will ensure that all these expenses are taken care of in your absence also. Ensuring that your child’s educational expenses are taken care of will also help your child avoid or reduce any student debt after they graduate.
If you have taken any kind of loan, be it personal loan, car loan, home loan, education loan, etc., your child or your next of kin will have to bear the burden of paying off the dues in the event of your untimely demise. With a life insurance policy, this will be taken care of so that your child and family members are not burdened with a huge financial obligation on top of the grief that they would be bearing.
These are the major reasons a life insurance policy is extremely important for single parents, more than for those who have the support of a spouse.
Factors to consider when buying a life insurance policy
There are many things to keep in mind when buying a life insurance policy. It goes without saying that you should finalise one only after meticulously researching and comparing various policies from different life insurance companies. Once you have decided, these are the important factors to be kept in mind:
If you have any financial obligations such as loans and mortgages, always go for a higher coverage amount. It should be sufficient enough to cover any outstanding dues as well as provide for the living and educational expenses of your child.
Naming a minor child as a beneficiary will not be of much use as legally, the child’s not paid the money directly until they turn 18 or 21, depending on the State in India. The money will be handled by the person you name as the legal guardian so make sure you name someone you can trust to handle the money. If you don’t take the time to name a legal guardian, then the court is obligated to appoint someone which could be an expensive and long-drawn out process.
Types of life insurance: There are different types of life insurance policies that it is good to be aware of each type. You can choose the type that best suits your requirements in life. The major types are:
- Term plan: Term plans provide your family with death cover within the policy period. It does not provide any maturity benefit.
- Endowment plan: Provides insurance, investment, and tax savings. You will also get a guaranteed amount after maturity.
- Money back plan: Provides insurance or death cover, maturity benefit, as well as a certain amount during the policy period.
- Whole life policy: This extends throughout your life and the nominee receives maturity benefit irrespective of age of the policyholder’s death.
- ULIP: Provides investment and insurance but the amount received on maturity depends on the performance of the mutual funds that your money was invested in.
The amount of premium you can afford to pay has to betaken into account when you are choosing a life insurance policy. Term plans have the cheapest premiums compared to the others mentioned above.
Some policies provide the flexibility to pay premiums only for a limitedperiod or top up the sum assured at a later date. Look out for these features if it will be beneficial to you.
There are different riders that can add more value to your life insurance policy, such as critical illness rider, accidental death benefit rider, etc. These will help in the event of an accident or critical illness by providing enough financial coverage to take care of the expenses needed at such a challenging time.
Life insurance is a serious matter that every single parent needs to consider carefully to secure the future of their children. Understanding the importance of it, the types, and factors to look at will help you choose the right policy for yourself and your child.