How To Get Life Insurance For Your Parents
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Summary:
Buying life insurance for your parents could provide financial protection in the event of their passing and help pay for end-of-life expenses such as funeral costs. To purchase life insurance for your parents, you’ll need their consent and prove to the insurer that you’ll suffer financially if your parents pass away.
It can be difficult to fathom a life without your parents. However, planning ahead and purchasing life insurance for them could ensure you and your family aren’t left with a hefty financial burden when they pass away.
In this article, we’ll explore why getting life insurance for your parents could be the right move, how to purchase life insurance for them, and what you should be aware of before committing to an insurance policy.
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How do you buy life insurance for your parents?
To purchase life insurance for your parents, you must get their consent first. Though it’d be nice to gift your parents a life insurance policy as a surprise, most insurers won’t allow it since you’ll need your parents’ signatures on the application. Plus, most insurance companies will require your parents to go through the application process themselves and even undergo a medical exam.
Additionally, you’ll need to demonstrate that you have “insurable interest,” meaning you’ll face financial difficulties if the insured parent passes away. Before offering coverage, insurance companies will typically conduct a phone interview with you and your parents to verify whether insurable interest is present.
The amount of life insurance your parents need will depend on how much they make, how much debt they carry, how many kids they have, etc. It’s also important to consider the costs you might face upon their passing like funeral expenses.
Consult a licensed life insurance agent or financial adviser to help you determine the right coverage amount. Don’t forget to compare quotes and benefits from several insurers before making a decision on what the best life insurance is for your parents.
Reasons to get a life insurance policy for your parents
Your parents may think that they don’t need life insurance. However, if someone in your family could suffer financially if they pass away, life insurance is worth considering. Here are some reasons why you should think about getting life insurance for your parents:
Help cover final expenses
Life insurance can help cover any final expenses your parents may have after their passing. This could include burial costs, legal fees associated with settling the estate, or any unpaid medical costs.
Additionally, having life insurance can give your family some financial breathing room in an already difficult time of grief.
Accelerated death benefit
Some life insurance policies offer accelerated death benefits — an add-on for those who have been diagnosed with a terminal illness. So, if your parents are terminally ill, this policy add-on allows them to receive part of their death benefit while they’re still alive. They can use this money to cover medical bills, long-term care costs, or basically anything they want.
Income replacement
If your parents were the primary breadwinner for your family, life insurance could help to replace their income. This way, those left behind (like your siblings) can still pay the bills and maintain their lifestyle without too much disruption.
This provides peace of mind for both you and your parents, knowing that you won’t be burdened with unexpected debt or have to make drastic changes to your lifestyle if something happens unexpectedly.
Payouts are usually not taxable
Another benefit of getting life insurance for your parents is that any money received as part of the death benefits will typically not be taxed. In other words, whatever funds are paid out upon the passing of your parent will go directly to their beneficiary without any additional costs due to taxes.
And since some life insurance death benefits can be upwards of millions of dollars, this could be a significant advantage to buying (and receiving) life insurance.
Pro Tip
Though life insurance death benefit payouts are usually not taxable, keep in mind that there are some scenarios where you may have to pay Uncle Sam. For example, you may have to pay taxes if you receive interest on the death benefit or if the death benefit goes to the insured person’s estate. Be sure to talk to your life insurance agent to understand whether your payouts could be taxed.
Options for parents’ life insurance
The available options for your parent’s life insurance will depend on their age and health condition. However, it’s still worth understanding the types of insurance policies out there before you start shopping around.
Limited policies
“Limited” or “temporary” policies mean just that — these policies cover a specific term for the policyholders. Outside of that term, your parents won’t be covered.
- Term life insurance. Term life insurance covers you for a certain period of time, usually between five to 25 years. The coverage ends when the policy term ends. So, if the insured person dies after the policy’s expiration date, beneficiaries will not receive any death benefit. However, one benefit of term life insurance is that it’s typically more affordable than other types of insurance policies.
- Final expense life insurance. Final expense life insurance policies are designed to cover end-of-life expenses such as funeral costs and other unpaid bills after your parents pass away, so your family isn’t burdened with those costs afterward.
Permanent policies
Just as before, “permanent” policies mean that your parents will be covered until they pass unless they decide to end life insurance coverage early.
- Whole life insurance. Whole life insurance is one of the most popular policy types because of its lifelong coverage. Plus, these policies typically allow you to build cash value — a tax-deferred savings component that can be accessed outside of the death benefit. Though whole life insurance is generally more expensive than term life insurance, you will receive a death benefit regardless of when your parents pass away.
- Universal life insurance. Universal life insurance is a flexible permanent life insurance policy that allows you to increase or decrease how much you pay toward premiums. This type of insurance policy is great if you want the flexibility to adjust your premiums depending on your financial needs. However, because of this flexibility, universal life insurance is typically costlier than whole life insurance.
- Variable life insurance. Variable life insurance is a type of permanent life insurance policy that allows you to invest the money in your cash value in various funds offered by the insurance company, such as mutual funds. Though variable life insurance provides the potential to earn more interest, you could risk losing money if you invest in underperforming funds.
What to be aware of when buying life insurance for your parents
Life insurance can be a great way to protect you and your family members financially in the event of your parent’s death. That said, there are several factors you should consider before committing to a policy.
1. Premiums could be expensive
Matt Schmidt, a licensed insurance agent, says, “One thing we point out to our clients who are exploring life insurance for their parents is to understand that the premiums will most likely be expensive. Most of our parents are not in perfect health and may be living with Diabetes, a history of cancer, or heart attacks as examples.”
With that in mind, it’s important to have realistic expectations and know that it’s unlikely that your parents will qualify for a million-dollar policy for $25 a month.
2. Know your parents’ medical history
Kelly Maxwell, CEO of Seniors Mutual — an online life insurance agency for seniors — says it’s important to “know your parents’ medical history.”
“You’ll need to know the prescriptions and any serious health events your parents have had in the past 2-5 years, sometimes longer,” she says. “Many parents were denied coverage by insurers because they didn’t know which prescriptions they take or exactly how serious some of their health events were.”
3. Understand what you’re buying
Paul LaPiana, CFP and head of product for MassMutual, says, “Take the time to research the options and work with people you trust. With life insurance, you’re securing a future commitment that may be years or decades away. So, be sure to research the company behind the policy to ensure it has high financial strength ratings, longevity, and an excellent track record of paying claims.”
FAQs
How do you prove insurable interest?
To confirm that you have an insurable interest in your parents’ lives, a life insurance company will conduct a phone interview with the policy owner, beneficiary, and insured (you and your parents). By doing so, they can better investigate the relationship and evaluate if an insurable interest is present.
What else do I need to do to buy a life insurance policy for my parents?
Besides getting consent from your parents and proving your insurable interest, you’ll also need to provide your parents’ information — such as their Social Security number, name, and address — to complete the application.
Depending on the type of life insurance policy and the life insurance company, your parents may also need to undergo a medical exam during the underwriting process. Medical exams help insurance providers check for any unknown medical conditions that could adversely impact your parents’ life insurance so that they can determine a reasonable rate to offer you.
When can you buy life insurance for your parents?
You must be at least 18 years old to buy life insurance for your parents. However, most companies make permanent life insurance (universal and whole life policies) available to applicants up to age 85. So, if your parents are 85 and older, you may not find many insurers willing to issue a policy.
How much life insurance is good for my parents?
When it comes to how much life insurance is good for your parents, there’s no one-size-fits-all answer. It really depends on the policies they qualify for and what you can afford in premium payments each month. On top of that, you need to consider a death benefit amount that works best for you and your family if something were to happen.
To select the right level of coverage, consider the costs you might face upon your parents’ passing. These include funeral services, medical bills, and any other end-of-life expenses.
Key Takeaways
- You’ll need consent from your parents and demonstrate insurable interest before purchasing a life insurance policy for them.
- Some of the most common life insurance policies are term, whole, universal, variable, and final-expense life insurance.
- Premiums could be expensive, especially if your parents are in poor health. So it’s important to set realistic expectations when shopping for a policy.
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