A Guide to Buying Life Insurance on Your Parents
Have you been thinking of buying life insurance on your parents?
Buying life insurance can sometimes take a bit of time and effort. This is especially the case if you fall into an older age bracket or if you happen to have an adverse health condition. But if you are purchasing a policy for someone else, there are definitely some additional rules that you need to abide by.
When buying life insurance for your parents, you will typically need to have their knowledge and their approval.
In most cases, prior to age 85, buying life insurance for your parents can be relatively affordable, depending on the type and amount of coverage, and the carrier you choose to purchase the coverage through.
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Why Consider Buying Life Insurance for Parents?
There are a number of reasons why a person would want to have life insurance for parents. This is true even if you no longer are considered a dependent and are no longer relying on them for your financial support.
One of the primary reasons why an adult child would consider buying life insurance for a parent or parents is to cover the cost of a funeral and other final expenses. Today, the average cost of final expenses can be approximately $10,000 when adding together the cost of a burial plot, headstone, and a memorial service. So, having a life insurance policy in place can help with easing these expenses.
Another reason for adult children to have life insurance on parents is to ensure that any unpaid debts can be paid off. Now, because people are living so much longer than in the past, many people who are in their 60s, 70s, and beyond may still be liable for a mortgage balance, auto loans, credit card debt, and other financial obligations.
With that in mind, obtaining life insurance for parents over 60 – or even those who are older – can make good financial sense, especially if they have taken on debt that would be the responsibility of the next generation at their passing.
Can You Buy Life Insurance for Parents?
While there are many reasons to purchase coverage, you may be wondering, can I buy life insurance for my parents, or will they need to purchase the policies themselves? When you are in this situation, you will need to prove to the insurance company what is known as insurable interest.
This means that you would suffer some type of a financial loss in the event of your parents passing.
For example, if your parents have certain financial obligations that you would become responsible for, then you would have an insurable interest. Likewise, if you would be obligated for paying your parents’ final expenses, then this too would qualify.
How Do I Purchase Life Insurance for My Parents?
When considering the purchase of life insurance policies for parents, there are some steps that you should take prior to moving forward. First, you will want to determine approximately how much coverage you will need.
For example, if you are buying life insurance for your parents in order to pay off specific debts, then you should add up the amount of the debt (or debts) to be paid off in order to come up with the policy’s face amount.
Likewise, if you are purchasing the coverage in order to cover your parents’ final expenses, then you may need to call several funeral homes in their area to get an estimate of the total cost of their services.
In adding up these expenses, you may also want to add some additional coverage, as many insureds may also have some uncovered medical and/or hospice costs that could become the responsibility of loved ones. Having these instead paid off by a life insurance policy can be a financial relief for family members.
You may also need to ask your parents if they will have a possible estate tax issue – and if so, if they have made any arrangements for paying this potentially large liability. If not, then life insurance can be an ideal way to pay a parent’s estate taxes. By having these funds available, you can forgo having to liquidate other assets such as stocks and other investments (often at below market value), as well as family heirlooms.
*It is important to note here, however, that an estate attorney should also be notified. This is because the life insurance that is purchased in conjunction with regard to estate taxes will typically need to be placed into a trust.
What is the Best Type of Life Insurance Policy for Parents?
When considering life insurance for your parents, there is different types of life insurance coverage to consider. The primary types of life insurance that are available in the market include term and permanent.
If considering term life insurance for parent coverage, this will provide you with pure death benefit protection only – and because of that, it will often be more affordable than a comparable permanent life insurance policy. This is especially the case if your parents are in good health at the time they apply for coverage.
Term Life Insurance
Term life insurance is purchased for a certain amount of time, such as 10 years, 15 years, 20 years, or in some instances, even for 30 years, depending on the insurance carrier the age of the applicant. This type of coverage is often referred to as “temporary ” insurance because the coverage will expire at the end of the time limit, or “term” of coverage.
Term life insurance is usually not the answer if you are looking for coverage for elderly parents as they can easily outlive the term length which defeats the purpose of having coverage at all.
If you go instead with permanent life insurance for your parents, then you will have death benefit protection that lasts forever. This is especially important if you need to cover burial expenses. There are several types of permanent life insurance policies.
These can include:
Whole Life Insurance
Whole life insurance is thought to be the most simple form of permanent life insurance. This is because it provides a guaranteed death benefit for the insured, and a premium amount that is locked in for life. This premium amount will not go up, regardless of your parent or parents increasing age, or even if they obtain a health condition after they have purchased the insurance policy.
The cash value of a whole life insurance policy will also grow at a set, guaranteed rate of interest. Over time, this cash can build up substantially. One reason for this is because it is allowed to grow tax-deferred, which means that there is no tax due on the gain until the time it is withdrawn. There may also be dividends on some whole life insurance policies, although these are not guaranteed.
Universal Life Insurance
Universal life insurance is also a form of permanent life insurance coverage that you could consider purchasing for your parents. Like whole life, this type of coverage also provides both death benefit protection, as well as cash value.
This form of coverage is considered to be more flexible than whole life insurance, though, because the policyholder is allowed to, within certain guidelines, decide how much of their premium dollars will go towards the policy’s cash value component, and how much of the premium dollars will go towards the policy’s death benefit.
Variable Universal Life Insurance
While variable universal life is another form of permanent life insurance coverage, it may not be the best option to consider for parents. This is particularly true if your parents are over 60 and are concerned about keeping the principal in their cash value safe.
This is because the cash in the cash component of a variable universal life insurance policy is exposed to market risk. Therefore, while these funds do have the opportunity to grow more than those in a whole life policy, they can also experience losses.
Indexed Universal Life Insurance
With indexed universal life insurance, there is also both a death benefit and a cash value component. Here, the cash value is linked to an underlying market index. While the cash value has the opportunity to rise when the underlying index goes up, it will not experience loss when the index has a negative year. So, with this type of policy, the principal remains safe.
If you are considering investing funds with the possibility of index-linked growth, yet want to keep principal safe – while at the same time providing death benefit protection on a parent or parents – then indexed universal life insurance could be an option.
Second to Die Life Insurance
There are certain types of life insurance policies on the market today that are known as second to die or survivorship life policies. These policies actually cover two individuals instead of one. The benefit is paid out when the second person passes away. While this type of coverage is more expensive than just one policy, it can be considerably less that buying two separate policies on your parents.
How to Get a Life Insurance Policy Issued on Your Parents
Once you have decided on the type of life insurance policy that you want to purchase on your parents, you will need to ensure that they qualify for coverage. You can do this by submitting an application for coverage to the life insurance carrier. The insurer will need to review your parents’ health and health history, as well as other factors such as:
- Health history
- Medication history
- Smoking status
- Occupation and income
- Foreign travel frequency
- Habits and hobbies
- Other life insurance in force (and the amount of that coverage)
Depending on the type of policy you are applying for and the coverage amount you need when buying life insurance for your parents, the application process will also typically entail a medical exam. This generally takes about 30 minutes, and it can take place either at your parents’ home or other convenient location for them.
If the policy the apply for requires an exam then they will meet with a paramedical professional who will ask them some health questions. The “paramed” professional will also take from them a blood and a urine sample. These samples will be tested by the insurance company in order to determine more information regarding your parents’ health.
In addition, it is possible that in order to obtain even more details about your parents’ overall health condition, the life insurance underwriters may request the medical records from their primary care physician, any medical specialists that they see – or from both.
Once all of the health information has been obtained by the insurance carrier, the underwriters will be able to make a determination about your parents’ life insurance policy, as well as to decide on an offered premium amount.
What If Your Parents Are Not In Good Health?
If you are purchasing life insurance for elderly parents or any life insurance quotes for someone over 50, or if your parents have any type of an adverse health condition that makes them high risk, that may deem them as being uninsurable for a medically underwritten life insurance policy. If this is the situation then there are still options that are available to them.
A guaranteed issue life insurance policy may be the way to go in this situation. With this type of coverage, a medical examination is not required – and because of that, applicants who may have conditions such as cancer, major illness or disease, and other health issues will be able to qualify.
In many cases, there are no health questions to answer on the application – and, because there aren’t any health underwriting requirements to contend with, these policies can oftentimes be approved within just days. That means that life insurance for your parents could be in force almost immediately.
The downside is there is a two-year graded death benefit and the maximum amount of coverage you can get is up to $50,000 depending on the carrier.
To get a quote for this type of policy start here.
Taking the Next Step for Buying Life Insurance on Your Parents
If you’re considering buying life insurance on your parents, but you aren’t sure how to get started, we can help. We work with more than 40 insurance carriers, so we can work with you in determining the best plan of coverage – regardless of age or health.
In fact, if you want to get an idea of how much it would be to buy life insurance for your parents, we can provide you with instant quotes in just minutes – directly from our website. We’ve helped thousands of families get the life insurance protection that they need – and we’ll be happy to work with you.
So, whether you are worried about covering final expenses, paying off your parents’ debt, or other obligations, and we’ll get you started on the plan that’s right for you.