A lot changes in the event of a divorce, especially finances. Being the “sole proprietor” of the household brings with it the huge responsibility of providing for your children. However, you are not alone. According to the 2006 U.S. Census, there are approximately 14 million single parents in the United States today, and those parents are responsible for raising 21.6 million children.
As a single head of the household, it is critical to ensure that your children are protected and financially secure at all times. One good strategy that working single parents can use to help protect personal assets is to plan for a periodic evaluation of their current insurance coverage to ensure that both they and their children are protected from any gaps in coverage as well as from the risk of being “underinsured” and lacking adequate protection.
Suddenly Single? Time to Educate Yourself with “Insurance 101”
With your new marital situation, you can take some easy steps to evaluate your family’s unique situation and ensure you have the right amount of insurance protection to meet the changing needs of you and your children.
Up front, it is important to understand the difference between primary and supplemental insurance. As a benefit, many employers offer some type of primary health insurance plan to their employees (depending on the size of the organization and applicable legislation). Generally, these plans will include basic health benefits and possibly some type of life or disability insurance.
Supplemental insurance is extra or additional insurance that can help you pay for some of the things your primary insurance doesn’t cover. Often, supplemental plans pay cash benefits directly to you so you can use the money to help pay for out-of-pocket medical costs, lost wages, or other unexpected expenses due to illness or injury. Typically, supplemental insurance plans include four basic categories — disability, accident, life, and health.
Here are some simple steps for reviewing your insurance and determining whether or not you have the right protection.
Step 1: Assess your own coverage. What does your primary standard insurance cover? Health? Disability? Life? What’s missing?
A smart first step is to collect all of your insurance paperwork and take a look at your current coverage. Evaluate what your current health insurance covers for your family. Additional questions to consider include whether your employer changed or reduced policy coverage in recent years and whether disability or life policies are offered.
Disability insurance is critical for a single parent. If you’re the sole provider and an illness or injury forces you to stop working, your family may be financially at risk. Even a temporary loss of income due to an auto accident, a fall, or a medical problem can severely affect your family. Many people underestimate their risk for suffering a disabling injury that could prevent them from working and earning income. By the time they find themselves in this type of situation, it’s too late to purchase adequate insurance protection.
According to the National Investment Watch Survey conducted by A.G. Edwards Inc. in 2004, more than 70 percent of working Americans did not have enough savings to meet short-term emergencies. Your health insurance may cover a large portion of your medical bills, but it won’t make up for your lost income. A disability policy aims to replace some part of your income, sometimes up to 70 percent, when you can’t work.
Look to see if you have short- or long-term disability coverage through your employer, but keep in mind that workers’ compensation benefits only cover disabilities suffered on the job, which only represent an estimated four percent of long-term disabilities. Supplemental disability income insurance is paid directly to you for covered disability for up to five years on some policies when you are totally disabled and can’t work due to an accident or sickness. You are protected, on or off the job, 24 hours a day, 365 days a year.
Finally, make sure your life insurance policy is up to date. Evaluate if you should change the beneficiary based on your change in marital status.
One thing many people do not consider regarding life insurance is the final expenses incurred after a death, such as a funeral service, burial or cremation, taxes, and more.
According to the National Association of Funeral Directors, the average cost of funeral expenses is approximately $7,000. These are expenses that often must be paid immediately, generally before the settlement of the deceased’s estate. This can place a heavy financial burden on family and friends, compounding the emotional strain from their loss. One option to help offset this burden is an affordable supplemental life insurance policy.
Step 2: Look at your children’s coverage. Are they insured?
If you children are insured under your employer’s benefits program, that is a positive. If an ex-partner’s plan is covering your children’s insurance needs, make sure you are aware of what the coverage is and have copies of all the paperwork so that you understand the benefits your children are entitled to and how to continue obtaining them.
If your children currently have no coverage, look into expanding your coverage or your ex-spouse’s to include your children. Even if your former spouse’s plan provides primary insurance, supplemental insurance can provide funds to help cover certain out-of-pocket expenses, like co-pays and deductibles, not covered by primary health insurance.
Step 3: List your assets and liabilities
As a single parent, you have your plate full of things to worry about. Keeping your finances in order can help ease your mind and take one thing off your list.
Sit down with a pen and paper and answer these questions:
- What do you have coming in? Salary? Child support?
- What do you have going out? Mortgage/rent? Regular monthly expenses? Debt? Tuition? Retirement?
- Do you have an “emergency fund”?
A review of your income and savings vs. your expenses is a good exercise to help you determine the amount of coverage you might need. The more people you support, the more likely you are to have unexpected or unplanned costs. Also, remember that it is essential to have an emergency fund to help the family stay afloat following unplanned situations. The minimum amount in your emergency fund should be three to six months worth of basic living expenses.
There are many supplemental insurance providers that offer critical-care protection products to provide an “emergency fund” to help pay for expenses that primary insurance policies may not cover. Such products typically cover a range of conditions, including cancer, heart attack, heart surgery, and stroke. For example, a lump-sum benefit from a critical-care policy could help:
· replace lost or reduced earnings;· pay for additional medical expenses such as home care or experimental treatments;* repay debt or pay regular bills that do not stop because of illness, like the mortgage, groceries, etc.
Step 4: Ask “what if?”
Make sure you have covered all your bases. Have you considered what you would do if:
- You couldn’t work due to your own condition or your child’s?
- You became critically ill?
- You died prematurely?
Look at each situation and assess what financial resources you would need to deal with each one; take into account how long the situation might last, what impact the ages of your children would have on it, and what resources or arrangements you have already secured to address the situation.
Many people don’t realize that traditional insurance plans don’t cover all expenses. There are out-of-pocket costs, including deductibles, co-payments, co-insurance, and other cost-sharing responsibilities, and long-term recovery can include many unexpected expenses. That’s why it’s important to make sure the insurance coverage you carry will be sufficient to meets your needs.
Step 5: Talk to a professional.
Once you’ve done your homework, contact a professional insurance agent to work with you to:
- determine gaps between the coverage you have and what you might need
- offer coverage options to meet both your protection needs and budget
This is not a quick process; it takes time and real effort to complete a good assessment. However, the results will pay dividends by securing your future and that of your children.
Combined Insurance (www.combinedinsurance.com) is a leading provider of supplemental accident, health, and life-insurance products and is a member of the ACE Group of Companies. With a field sales force and corporate staff in excess of 10,000 people worldwide, Combined meets the growing coverage needs of policyholders around the globe. For more information, call 1-800-490-1322 or visit www.combinedinsurance.com.
The ACE Group of Companies is a global leader in insurance and reinsurance serving a diverse group of clients. Headed by ACE Limited (NYSE: ACE), a component of the Standard & Poor’s 500 stock index, the ACE Group of Companies conducts its business on a worldwide basis with operating subsidiaries in more than 50 countries. Additional information can be found atwww.acelimited.com.