Dementia And Life Insurance: Options For Elderly Parents

If you're concerned about your elderly parents' financial future and ability to cover their expenses, you may be considering life insurance for them. It is possible to take out a life insurance policy on your parents, but there are a few things to keep in mind, especially if they are showing signs of dementia. Firstly, you'll need their consent and proof of insurable interest, which means you will be financially impacted by their passing. The cost of the insurance will depend on their age and health, with higher premiums for older individuals. If your parents are in good health with no major issues, obtaining coverage should be easier and premiums will be lower. However, for those with dementia, traditional life insurance may not be an option due to the condition being considered a pre-existing condition by insurance companies. But there are alternative options like guaranteed issue life insurance, which provides coverage without requiring medical exams or health questions, making it ideal for those with health issues.

Consent and insurable interest

Consent:

Insurers require the consent of the insured person, in this case, your elderly parents, before issuing a life insurance policy. This consent is typically given by signing the life insurance application or policy. As dementia progresses, your parents' decision-making capacity may decline, so it's essential to obtain their consent while they still have the cognitive ability to understand and agree to the policy terms. Without their consent, you cannot take out a life insurance policy on your parents.

Insurable Interest:

Insurable interest is a fundamental requirement when taking out a life insurance policy on someone else. It ensures that you have a financial stake in your parents' continued well-being and would suffer financial hardship if they passed away. Insurable interest is designed to prevent fraud and moral hazards, such as situations where a policyholder might benefit financially from causing harm to the insured.

In the context of insuring your elderly parents, you need to demonstrate insurable interest by showing that you will suffer financial loss upon their passing. This could include funeral expenses, burial costs, or other end-of-life expenses. Insurable interest can also extend beyond financial considerations to include sentimental interest based on love and affection, especially in family relationships like the parent-child relationship.

To prove insurable interest, you may need to provide legal documentation, such as birth certificates or other records that establish your relationship with your parents. The insurance company will investigate the relationship to determine if there is a valid insurable interest. Without proof of insurable interest, the life insurance application will not be approved.

In summary, obtaining your elderly parents' consent and establishing insurable interest are essential steps in the process of taking out a life insurance policy on them. It's important to be transparent and provide the necessary documentation to ensure the policy serves its intended purpose of providing financial security for your family.

Types of life insurance policies

Yes, you can take out a life insurance policy on your elderly parents, provided you have their consent and can demonstrate "insurable interest", i.e., that you will suffer financially when they pass away. The cost of the insurance will depend on their age and health.

Guaranteed Issue Life Insurance

This type of policy does not require a medical exam or health questions. It is often used as final expense or burial insurance and has low death benefits, typically under $25,000.

No Medical Exam Life Insurance

Similar to the above, this is a high-risk policy for the insurer, so the death benefit is low.

Simplified Issue Life Insurance

This costs less than guaranteed issue insurance and has higher death benefits. It does, however, require some health questions and basic demographic information. Coverage starts soon after the application is accepted.

Term Life Insurance

This provides coverage for a specified period, typically 10 to 30 years. It pays out a death benefit if the insured dies during the policy term. It is the least expensive type of insurance and premiums are based on the insured's age, health, and lifestyle.

Whole Life Insurance

Whole life insurance is a type of permanent coverage that lasts your entire life. It includes a savings component that builds cash value over time, which can be used to help cover medical expenses or everyday living costs. Whole life insurance is generally more expensive than term life insurance.

Universal Life Insurance

Universal life insurance is a permanent policy with an investment portion that grows in a tax-deferred account. It offers more flexibility than whole life insurance, allowing you to adjust premium payments and benefit values.

Variable Life Insurance

Variable life insurance is a riskier type of permanent insurance. It has a fixed death benefit and a variable cash value that rises and falls based on payments and the performance of selected investments. It offers a wider range of investment options but also exposes you to higher risk and fees.

Final Expense Life Insurance

Also known as funeral or burial insurance, this is a type of whole life insurance with a smaller and more affordable death benefit. It is easier for older or less healthy individuals to qualify for.

Factors affecting premiums

There are several factors that can affect the cost of life insurance premiums for elderly parents with dementia. Here are some key considerations:

Age and Health Status:

• The age of your parents will significantly impact the cost of premiums. Older individuals generally face higher premiums as they are considered higher-risk by insurance companies.
• The presence of dementia or other health issues will also affect premiums. Dementia is considered a pre-existing condition, and insurers will take into account the severity and progression of the condition, as well as any other health issues your parents may have.

Type of Insurance Policy:

• Traditional term or whole life insurance policies are typically more affordable but may not be available to individuals with dementia. Guaranteed issue life insurance, which accepts everyone regardless of health status, tends to have higher premiums.
• Simplified issue life insurance, which does not require a medical exam but asks some health questions, may be an option depending on the stage of dementia, but it could still result in higher premiums or limited coverage.

Death Benefit Amount:

The death benefit payout your parents choose will influence the cost of premiums. Guaranteed issue policies often have lower death benefits, typically under $25,000, which keeps the premiums lower compared to policies with higher death benefits.

Waiting Period:

Guaranteed issue policies often have a waiting period, typically two years, before the coverage takes effect. This means that if the insured person passes away within the first two years of the policy, the death benefit will not be paid out, which reduces the risk for the insurance company and can result in lower premiums.

Family History and Onset of Dementia:

Insurer underwriters will consider family history and the age of onset of dementia when determining premiums. If there is a family history of dementia or if the condition has an early onset, it could impact the cost of premiums.

It's important to note that the availability and cost of life insurance for elderly parents with dementia can vary depending on their specific circumstances and the insurance provider. It's always a good idea to compare rates and policies from multiple companies to find the best option for your parents' needs.

Pre-existing conditions

Dementia is considered a pre-existing condition by life insurance companies. This means that it can affect the rates you are offered and whether or not your application is approved. Insurers will also take into account other pre-existing conditions such as diabetes, high blood pressure, heart disease, and cancer.

When applying for life insurance, the underwriters will consider several factors, including family history, age of onset, how long you have had the condition, how it is progressing, and other health issues that may be affecting your current condition.

Traditional term or whole life insurance can be challenging to get with dementia. However, it is not impossible. If your condition is not progressive and an insurer approves a policy, a whole life policy is recommended as there is no termination date.

If you are seeking life insurance for your elderly parents, their consent is required. Therefore, if they are showing signs of dementia, it is recommended that you get their consent before the condition is too advanced.

Application process

The application process for life insurance for elderly parents with dementia may vary depending on the insurance company and the specific policy being applied for. However, here is a general overview of what to expect:

• Research and compare policies: Before starting the application process, it is essential to research and compare different insurance companies and policies. This will help you understand the options available, the eligibility criteria, and the costs involved. It is advisable to compare rates and coverage from multiple companies to find the most suitable and affordable plan for your parents' specific needs.
• Determine eligibility: As dementia is considered a pre-existing condition, it is essential to understand the insurer's criteria for covering individuals with this condition. Some insurers may have age limits or specific requirements regarding the severity and progression of the condition. Understanding these criteria will help you determine if your parents are eligible for coverage.
• Gather required information: The application process will typically involve providing detailed information about your parents' health and medical history. Be prepared to provide details such as the age of onset, duration of the condition, treatment plans, family medical history, and any other relevant health issues. It is important to have this information readily available to ensure a smooth application process.
• Complete the application form: The application form for life insurance will require personal and medical information about your parents. It is crucial that your parents are able to understand and willingly sign the application and related contracts. In the case of dementia, the extent of their cognitive abilities will be assessed to determine their capacity to enter into a financial contract. Ensure that you carefully review the application form and provide accurate and honest information.
• Provide consent and demonstrate insurable interest: To obtain life insurance for your parents, you will need their consent. Additionally, you must demonstrate "insurable interest," which means you will suffer financial loss upon their passing. This is usually straightforward in the case of parents, but it is an essential component of the application process.
• Understand the waiting period and coverage terms: Guaranteed issue life insurance policies, which are commonly offered to individuals with dementia, often have a waiting period before the coverage takes effect. Typically, there is a two-year waiting period during which the insured person must survive for the policy to pay out the death benefit. Be sure to understand the waiting period and other coverage terms, including any limitations or exclusions, before finalising the policy.
• Explore additional options: Depending on your parents' specific circumstances, you may also consider other insurance options, such as final expense insurance or burial insurance, which can help cover funeral costs and other end-of-life expenses. Additionally, working with a qualified broker or insurance advisor can help you navigate the process and explore all available options.

Remember that the application process may vary, and it is always advisable to consult with a licensed insurance professional who can provide personalised guidance based on your parents' unique situation.

Frequently asked questions