Insuring Your Parents: Is It Possible?

Yes, you can insure your parents' lives, but you will need their consent to do so. This is because you need to prove insurable interest, which means that you would suffer financial hardship if they died. Insurable interest also applies if you rely on your parents for financial support. In addition to consent, your parents will need to be legally competent, and may need to undergo a medical exam. As the policyholder, you will be responsible for paying the premiums.

Insurable interest

Yes, you can buy life insurance for your parents to help cover their final expenses. However, this requires their consent, along with proof of insurable interest. Insurable interest is the legal, financial, and emotional interest someone has in an asset, piece of property, or another individual. In the context of life insurance, insurable interest means that the person taking out the policy would suffer financial loss or hardship if the insured person passed away.

In the case of parents, their children usually have automatic insurable interest if the children depend on their parents financially. Insurable interest also applies if the child would become responsible for their parents' financial obligations after their death, such as inheriting their house and mortgage, or any debts co-signed with the parents.

In addition to insurable interest, insurance companies will also consider the amount of the policy. The death benefit amount will be smaller for older parents who are not in good health, and you may be limited to an amount equal to your insurable interest.

Consent

Yes, you can purchase life insurance for your parents, but it is not something you can do without their knowledge or consent. In most cases, you will need their consent to buy a policy for them. This consent is usually obtained by having them sign the insurance application. In some cases, a medical exam will also be required.

The person whose life is being insured must sign the application. They will need to be legally competent to provide such consent. During the application, you will also need to provide their Social Security number, name, and address.

As the policy owner, you are responsible for paying the premiums and keeping the details up to date. You will also need to show why you have an insurable interest. This means that you will need to prove that you would suffer financially if your parents died. For example, if you receive financial support from them or they have a mortgage or other debts that you would be responsible for.

Children generally have an insurable interest in their parents, so this shouldn't be a deal-breaker. However, it is important to have a discussion with your parents about their wishes and get their consent before purchasing a life insurance policy for them.

If your parent agrees to the policy, you can then fill out the application. It is ideal for your mother or father to do this, but you can fill it out for them if necessary. Keep in mind that they may have to share potentially private medical information with you.

Insurable interest also applies if you depend on your parents financially. If losing their financial support would impact you significantly, you have an insurable interest in their lives.

Explaining the purpose of the discussion is important. Make it clear that your intention is to support their wishes. Set aside time to discuss how they wish to be remembered and determine how much life insurance is needed to pay for their final arrangements.

If your parent understands the necessity of life insurance, you can then follow the steps to purchase a policy.

Policy type

The type of policy you buy will depend on your parents' age, financial situation, and overall health.

Term life insurance is a plan where you must decide how long you'll need coverage for, typically 10, 20, or 30 years. The policyholder must pass during that term period for the beneficiary to receive the death benefit. Term life insurance is less expensive, so this may be a good option if you want to save money upfront and have a fairly good idea of future timelines.

Whole life insurance is a type of permanent life insurance. This means the beneficiary will receive the death benefit regardless of when the policyholder passes away. While these plans can be more expensive, they do guarantee benefits.

Final expense life insurance is specifically designed to help support end-of-life costs, such as funeral expenses, legal and accounting charges, and out-of-pocket medical bills. These life insurance plans can help make a painful transition feel a little more supportive.

Universal life insurance is another option if you want to ensure a policy is in place no matter when a parent dies. However, some universal life policies have a maximum age specified, and getting a higher age cut-off is more expensive.

Guaranteed issue life insurance doesn't require a medical exam, and you can't be turned down, so it's an option for parents who can't qualify for traditional life insurance due to health issues or age. But this option is one of the most expensive ways to buy life insurance, and the death benefits are usually very low, between $5,000 and $25,000.

If your parents are younger, you'll have more options and less expensive premiums.

Cost

The cost of life insurance for your parents will depend on several factors. The most significant factors are the type of policy, the age and health of the insured, and the death benefit amount.

Type of Policy

Term life insurance is generally the most affordable option, especially if you want to save money upfront. However, it only covers a specific period, such as 10, 20, or 30 years, and the coverage ends when the policy term ends. On the other hand, whole life insurance is more expensive but provides coverage for the insured's entire life and often includes benefits that term policies do not offer, such as cash value and faster claim payouts.

Age and Health of the Insured

The older and less healthy your parents are, the higher the insurance cost will be. The rate is solely affected by the age and health of the person being insured, not the age or health of the policy owner. In some cases, your parents may be required to undergo a medical exam, which will impact the available options and the cost of the policy.

Death Benefit Amount

The death benefit amount, or the payout you will receive upon your parents' death, will also influence the cost. The higher the death benefit, the more expensive the policy will be. This amount should be based on your parents' total debt, monthly expenses, medical bills, and the type of funeral services they wish to have.

Other Factors

Other factors that may impact the cost of life insurance for your parents include the insurance company's financial strength and ratings, as well as any additional riders or benefits included in the policy. It is important to compare quotes and benefits from several insurers to find the best rates and coverage for your needs.

Death benefit

A death benefit is the amount of money a life insurance company pays to a policy's beneficiaries when the insured person dies. This is the primary purpose of a life insurance policy; it's what you're paying for when you sign up for life insurance coverage.

The death benefit is designed to replace the income you once earned and support your loved ones in your absence. It can be used for everyday bills, larger debts, or to put a child through college. It can also help cover funeral services, final expenses, and any other details.

There are two common types of life insurance, each with different death benefit options:

Term Life Insurance

• Provides coverage for a specific period, usually 10-40 years.
• If the insured person dies during this term, their beneficiaries receive the death benefit.
• Term life insurance policies often have fixed death benefits, but some allow adjustments.
• No death benefit will be paid if the policy expires and the insured is still living.

Permanent Life Insurance

• Provides coverage for the insured's entire life, as long as premium payments are current.
• Beneficiaries are guaranteed to receive a death benefit payout no matter what.
• Permanent life insurance policies have living benefits riders, which can be used by the insured during their lifetime. This will, however, reduce the death benefit payout.
• Lump-sum payment: A single, tax-free payment to the beneficiaries.
• Installment payments: Divided into smaller payments over a specified period.
• Life income option: The death benefit is used to purchase an annuity, providing regular income payments for the beneficiary's life.
• Joint and survivor annuity: Regular payments to the primary beneficiary and, upon their death, a secondary beneficiary (usually a spouse) continues receiving a percentage.
• Specific income provision: Paid as a fixed amount over time. If the beneficiary dies before the end of the term, the remaining payments may go to a contingent beneficiary.
• Interest income option: The insurance company keeps the total and pays the beneficiary interest. The principal can be paid out later or upon request.

Considerations for Insuring Parents

When insuring your parents, it's essential to consider their age, financial situation, and overall health. These factors will impact the type of policy and the associated costs.

Additionally, you must demonstrate "insurable interest," meaning that the death of the insured would cause you financial hardship. This could include funeral costs, end-of-life medical expenses, inheriting your parents' mortgage, co-signed debts, or expenses related to caring for a surviving parent.

You will also need your parent's consent and may require their medical information and Social Security number.

Final Thoughts

Life insurance for parents can provide peace of mind and help ensure their final wishes can be carried out. It's important to carefully consider the different types of policies and death benefit options to choose the most suitable coverage.

Frequently asked questions