Single parents in India – How to prepare financially?

After her husband died in a car crash around 2 years ago, Myra, now 35, found herself struggling to make sense of her situation. As someone who unpredictably became a widower left to raise two children, she learned first-hand how difficult it can be to manage the responsibilities of a single mother. Her situation became a harsh reality which inspired a great deal of self-doubt.

Similar situation can happen to any spouse making their life miserable. Becoming a single parent can sometimes be a choice or a result of circumstances such as death of the spouse, divorce, judicial separation etc. But either way when it comes to the responsibility of bringing up a child as a single parent the challenges faced are immense. This is because usually in a family, there may be two incomes to handle the expense, conversely on the other hand single parent is likely to make it work on one income alone.  As a result of her situation, Myra faced hostility as she started struggling to balance work, life and single-handedly take care of her children. In between hectic work schedules, she often found herself in the dark trying to look for information, which could secure her children’s future. 

While no one likes to think about the worst-case scenario, but including life insurance planning in your financial kitty is important to ensure your kids financial future is taken care of. If you do not want to be in Myra’s situation there are some basic saving instrument’s that you must opt for depending on the extent of your existing and future liabilities.  They include: 

Term Insurance – Pure protection plan

As a parent you envision of providing best lifestyle and education to your children and leave no stone unturned in providing the same. Also, it goes without saying, as the sole adult in the family, your child is all dependent on your income and will be devastated if something happens to you. Yet, many single moms do not have coverage from term insurance and the hesitance is understood. One of the most common reasons that single moms don’t buy because they assume that they won’t be able to afford a policy, but in most cases, this couldn’t be further from the truth. If we actually try to see it through, it’s more expensive, in a way, to not have life insurance. There are several ways to get cheaper term insurance to give your children the protection they need. 

Term insurance plans offer guaranteed protection in terms of sum assured for a fixed premium ensuring a greater protection for your family. In case the policyholder dies during the term, the sum assured gets paid to the family. This means your child gets the compensation in case of your sudden death. The role of a pure term insurance plan becomes an important in tackling such a situation. A pure term insurance plan ensures that even if the parent is not around, the child’s goals are not compromised and are met on time. While buying term insurance, one needs to calculate the adequate coverage based on the human life value of an individual. As a thumb rule, one should have life cover of at least ten times one’s annual income and then add the coverage amount required as per the long term goals.

Below are price comparisons of Term Insurance offered by 4 prominent insurers for a 35-year-old female non-smoker covering up to 75 years’ residing in a metro city. The total sum assured is 1 Crore.  

ULIPs – Provide more for your children

Once you sort out your sources of income and create a safety net for your child, now it’s time to plan for better financial future. Being a single mother comes with its own challenges, especially in the financial arena. According to estimate data by Economic Times in April 2011, the average cost of raising a child from birth to age 21 comes to about ₹55 lakhs. Also, Inflation and rising cost of living, rising costs of higher education etc. pose a serious threat to financial stability of a single mother. 

Hence, to provide the best lifestyle and education to your child, ULIPs can be a great investment idea. As it allows you to create a corpus over a period of time which can be customized according to the insured person’s needs. In fact, nowadays ULIPs is highly chosen product for people looking for financial backing for their goals. Thanks to the power of compounding due to which investment in equities for a long term allows money to grow far higher ensuring ample future savings. 

The wealth created by investing in ULIPs will serve you in achieving your future financial goals such as education of your child, buying a car or home, retirement plans or other goals of your life. Let’s try to make you understand power of compounding of ULIPs by giving you an example. If at the age of 35 you start investing Rs 15,000 p.m. in ULIPs for approximately 25 years, you will be investing Rs 45 lacs. However, after 25 years your money will grow to Rs 1.4 Cr giving you the power to achieve your financial goals. 

(The author is Chief Business Officer- Life Insurance, Policybazaar.com.The views in the above article are the personal views of the author and do not reflect the views DNA)