Single mothers should hedge their life risk to ensure that their child’s future is taken care of even in their absence. Be sure to evaluate the right amount of insurance required to ensure that their everyday expenses and key financial goals are met.

Why should a single mother opt for life insurance

Single mothers are required to take care of the family’s financial responsibilities all by themselves. They are the sole breadwinner of the family, so in the event of an unfortunate eventuality, everything (including the financial aspects) could grind to a halt. Securing your child’s future is of prime importance to ensure that their milestones are taken care of without any obstacles. 

Opting for term insurance is the most basic thing to do as a single parent. However, it may not always be easy to assess the actual amount for which the term cover has to be availed. Most term insurance plans are similar with regard to the benefits, terms and conditions, exceptions, etc. To compare premium quotes across insurance providers and choose one that offers the lowest quote for the longest period. 

Listed below are some factors one should bear in mind while arriving at the quantum of sum assured (life cover):

1. Cost of education

The education of your child is one of the most important milestones you should plan for as a parent. Education cost escalation is second only to medical cost; their rate of increase is much higher than that of inflation. It is important to use a calculator to ascertain the corpus required at the end of the relevant timeline. The cost of education is a recurring one, with key milestones such as graduate degree and postgraduation, so the annual fees should be adequately provided for. Include this while arriving at the term cover requirement. 

2. Everyday expenses 

Everyday expenses for your child may seem irrelevant, but in your absence, the caretaker or guardian will need to tend to your child on a daily basis. Everyday expenses such as clothing, books, food, medical expenses, etc. have to be adequately taken care of. So, it is important to include this while arriving at the ideal term cover requirement. 

Related: How life insurance can support your long-term goals

3. Outstanding debt and other financial obligations

As a single parent, you may have availed of a home loan to buy a house to ensure a roof over your head. This loan calls for a long-term financial commitment. Often, banks have an inbuilt reducing balance term cover attached to the home loan. In case there is no inbuilt term cover, consider getting a term cover inclusive of the outstanding loan. The same is applicable for any other form of mortgage/loan you may have. This will ensure that your extended family is not left with a huge debt burden in the event of your demise.

4. Make your child a nominee 

Fill out the nominations appropriately for all your investments, if the child is a minor, nominate a guardian/beneficiary. You must choose the right beneficiary for your insurance policy. The insurance company will not pay the claim amount directly to the minor, so it is important to identify and appoint a guardian who will use the funds prudently for your child till they attain the age of 18, after which they will have direct access to the funds. The age may vary across states. If a guardian is not appointed, the court will appoint a guardian who will be responsible for managing the funds till the child becomes a major. One should ensure that the nomination is filed for all investments, including bank accounts, properties, etc.

5. Create a trust and appoint a trustee

As an alternative to naming the guardian as beneficiary, you could create a trust that can be the policy beneficiary. This would have a trustee (the guardian) who will be able to operate the account as per your wishes specified in the trust document. The financial aid extended will strictly adhere to what is mentioned in the trust document.

Term insurance plans offer the highest coverage at the least cost and hence are a very cost-effective tool to protect your dependents. Other than comprehensive coverage, there are other benefits such as tax advantages, additional coverage for critical illnesses and personal accidents, etc. which make the proposition even better. To know more about Term Plans, you can click here.

Related: 5 important reasons why women need life insurance

Last words

It is apparent that a single mother should avail of life insurance to cover the milestones of their child and meet their everyday expenses. In this regard, you should consult a financial advisor, who will be able to help you arrive at the right amount for term cover. Above all, it is important to make your child a nominee and appoint a guardian.