I’m a single parent – do I need life insurance?

03 November 2020

5 min read

Hannah Smith
Hannah Smith

Personal Finance Journalist


If you’re a single parent and are living on a tight budget, life insurance might seem like an unnecessary expense you can ill afford, but it doesn’t have to break the bank.

Single parent households  – 90% of which are headed by women - can struggle with money and barriers to employment. They may also feel the emotional toll of being the sole breadwinner and carrying all the responsibility for the family on their shoulders. Consequently, life insurance might seem like an unnecessary expense when it’s actually an investment in your family’s financial future.


How does life insurance work?

There are different types of life insurance, but essentially you take out a policy and make monthly or yearly payments into your policy. These might be guaranteed payments that are set at a certain level that doesn’t change. Reviewable payments are reviewed after a certain amount of time and could go up. Most insurers review them every 5 years, but some may review them annually. When you die, your insurance can pay out either a lump sum or a regular income to your dependants (these are your beneficiaries).

You can choose a whole-of-life policy which pays out whenever you die, or a term policy which only pays out if you die within a certain time period. Typically, term life insurance policies are cheaper, so worth considering if cost is important to you.

You can also get insurance that’s linked to your mortgage and would pay it off if you died. The size of the payout would shrink over time as your mortgage gets smaller. This type of insurance is called decreasing term insurance.

When you take out a life insurance policy, you will usually be given the option to put your policy in trust. This means that the money it will pay out is ring-fenced from the rest of your estate, so it will be paid out to your beneficiaries faster and is not subject to Inheritance Tax.

Your insurer should be able to arrange this for you.

If you work, it’s also worth checking whether your workplace offers any death-in-service benefits that pay out if you die. It’s worth noting that a death-in-service benefit will only pay out if you are working for that employer when you die. If you leave the company, you won’t be covered.


Do I need life insurance as a single parent?

As a single parent, you’ve probably already got a plan for what would happen to your children if you died. Having life insurance means your policy would pay towards their upkeep. But, as well as their everyday needs, a life insurance payout could help with university costs, driving lessons or even money towards a deposit on their first home.

Life insurance can also be used to clear any outstanding debts you may have, including your mortgage, and towards some of your funeral costs. 

However, bear in mind that a life insurance payout could affect their eligibility for means-tested benefits.


Where to start?

Think about what type of policy would suit you best, your budget, and how much cover you would like. There are online calculators to help you work out the ideal level of cover. If you own a property that would be sold on your death and your children would inherit the proceeds, you should factor this into your calculations.

Working single parents might also want to consider critical illness cover (many insurance policies will offer this as an add-on) and income protection which would cover your earnings if you were unable to work for a while due to illness or injury.

Having a conversation with a financial adviser could be a good idea if you are unsure where to start, and many will offer you an hour’s initial consultation for free.

If you have financial dependants, it’s worth considering life insurance. It’s a way of ensuring your children will be provided for if the worst happened.

You don’t need an all-singing, all-dancing policy – even a small policy is better than nothing.


Hannah Smith is a freelance financial journalist with a background in the trade press. She writes about personal finance, asset management and business for titles including Money Observer, Shares, FE Trustnet and MoneyWeek.