Evaluating life insurance coverage amounts for single parents involves three things – the first is the same as for married couples with children and the two remaining items are less financial and more based on a heightened desire for security/legacies often experienced by single parents.
First off, single parents want to maintain their children’s standard of living in the event of the parent’s premature death. You can calculate this amount in one of two ways. First, you can calculate an amount of 10-15 times your gross income. This amount is generally sufficient to maintain your children’s lifestyle (based on amount roughly equivalent to 60-80% of your income) for about 15-20 years – after which point the insurance proceeds would be entirely consumed. The second way is to determine how much annual income would be needed to look after the kids for about 15-20 years, and take 10-15 times that amount.
Secondly, single parents often want to be very conservative with their life insurance coverage, so the second consideration is that often single parents will purchase more life insurance than the above amounts. This is fine, and not strictly speaking a financial calculation. It’s simply something that we’ve seen in our experience with single parents.
Thirdly, single parents often have a heightened desire to leave a legacy to their children. This won’t necessarily increase the amount of coverage needed, but may impact the type of life insurance they purchase.
Evaluating life insurance coverage types for single parents is often a blend of two types. Strictly speaking, when replacing income or standard of living as above when we determined the amount above, the traditional type of life insurance would be term life insurance. This type of life insurance would remain affordable until the children are self sufficient ,at which point the term life insurance would be cancelled.
However, the sometimes increased desire for a legacy means that single parents may also consider an amount of permanent life insurance in addition to (or blended with the term life insurance). For example, you might consider $450,000 of 20 year term life insurance with $50,000 of permanent. This would give you $500,000 (the $450,000 term plus $50,000 of permanent) for the next 20 years. At that point the term would be cancelled, and you would have $50,000 of life insurance for the remainder of your life.
The final consideration, would be considering life insurance on your children as well. This is often accomplished with small amounts (perhaps $100,000) of permanent life insurance. This is often inexpensive, because while permanent life insurance is more expensive than term life insurance, the fact that the children are young normally makes the insurance on children affordable.