Whether you are single or married, if anyone is depending upon you or your income for any reason, buying life insurance to provide for those dependants is a wise financial move.
Life insurance should either replace your income that your family is depending upon or, if you make a non-financial contribution such as staying home to care for your children, should pay for the cost of someone providing the assistance to your family that you cannot. As you make the choice as to whether to buy life insurance, however, you may need to confront the question of whether to buy a term or whole life policy.
When Does a Term Policy Make Sense?
For most women, a term policy is the wisest choice. A term policy provides you with coverage only for a designated period of time. For instance, a term policy may be purchased for 10, 20, 30 or 40 years. The idea is that by the time the term expires, you will not need life insurance any more. For instance, consider different financial situations that women commonly find themselves in:
- If you are married or seriously involved, your spouse or significant other may depend upon your income to pay a portion of the household bills and mortgage. Over time, the mortgage will be paid down and money will be saved for retirement so your income is no longer necessary. By the time the term expires, it would likely be near or during your retirement period anyway, so your spouse would no longer need your income.
- If you are a single mother and your children are depending upon your income, then by the time the term expires, your kids should be on their own.
- If you are single and are purchasing insurance for those depending on you for financial support, such as aging parents or siblings who need help, then by the time the term expires, the need for your assistance should have waned.
- If you are a stay at home mom contributing to your family by providing childcare and household services, then your kids should be grown by the time the term expires.
As long as you purchase a term policy that lasts for long enough that no one needs you any more financially, then a term policy is generally the wisest choice. A term policy costs much less than a whole life policy and serves the important purpose of protecting your loved ones.
When Does a Whole Life Policy Make Sense?
A whole life policy makes sense when you are always going to have a need for insurance because someone is always going to be depending upon you for support no matter how old you are when you pass away. There are two common situations where this might occur:
- When you have a disabled child who requires lifelong care. In this case, if you are a single mother, you will need to have a very large policy so that you can provide for your child’s care once you are no longer available to provide it. If you are married, then you and your spouse should make sure that either one of you could take care of your child if one of you dies and that there will be a large payment for care when both of you pass away. Sometimes, buying a joint life policy in addition to an individual policy makes sense in these situations so there is a payout when you pass away for your spouse to continue caring for your child, and then a bigger payout when you both die and someone else needs to take over care.
- When you have a large estate with significant estate taxes and you want your beneficiaries to be able to pay the taxes with money from life insurance premiums so nothing from the state will have to be sold off.
Outside of these or other limited situations where an insurance payout is always going to be needed, a whole life policy rarely makes sense for women. While you could use it as an investment vehicle, most financial experts agree that it is not a very good one due to fees and limits on interest earned and instead advise investing your money elsewhere.
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