Navigating Life Insurance: Your Guide To Parent's Policies

You can buy life insurance for your parents, but you'll need their consent and involvement in the application process. This means they'll need to answer health-related questions and undergo a medical exam. Additionally, you must have an insurable interest, which means you would suffer financially from their death.

The type of policy you buy will depend on their age, financial situation, and overall health. The younger and healthier your parents are, the more options you'll have and the less expensive the premium will be.

Getting consent from your parents

Initiating the Conversation

The topic of life insurance may be challenging to discuss with your parents, but it is crucial to have open and honest communication. Start by explaining your intentions and reassuring them that your goal is to support their wishes. Emphasize that having this conversation will provide peace of mind for the entire family. It is essential to set aside dedicated time to discuss their preferences regarding end-of-life planning and determine the necessary amount of life insurance to cover their final arrangements.

Explaining the Benefits

During your conversation, highlight the benefits of life insurance for both your parents and the family as a whole. Explain that life insurance will provide financial stability and help cover various expenses, including funeral costs, medical bills, outstanding debts, and even relocation costs for a surviving parent. It is important to note that life insurance policies can also include living benefits, allowing your parents to access a portion of the death benefit early if faced with a qualifying illness.

Determining Insurable Interest

To purchase life insurance for your parents, you need to demonstrate insurable interest, meaning you would suffer financial or emotional hardship due to their death. Explain to your parents that, as their child, you inherently have insurable interest. Discuss any financial dependencies, such as income reliance, and address any concerns they may have about the impact of their death on your financial situation.

Obtaining Their Signature

For the life insurance policy application, you will need your parents' consent and signature. Explain to them that their signature is a necessary step in the process and that they will need to be involved in the application. Assure them that you will work together on the application and that their involvement is crucial in securing the policy.

Choosing the Right Policy

Research and discuss the different types of life insurance policies available, such as term life insurance and whole life insurance. Consider your parents' age, financial situation, and health to determine the most suitable option. Involve them in the decision-making process to ensure they are comfortable with the chosen policy.

Remember, obtaining your parents' consent is not just a legal requirement but also an opportunity to have meaningful conversations about end-of-life planning and ensure their wishes are respected.

Proving insurable interest

To get a life insurance policy for your parents, you will need their consent along with proof of insurable interest. Insurable interest is the legal and financial interest or attachment someone has for an asset or piece of property that a life insurance policy may cover. In the case of a life insurance policy, an individual is insured instead of an asset or property. As a result, insurable interest in life insurance is the emotional, legal, and financial interest a person has in a life insurance policyholder.

Spouse: People are generally considered to have an insurable interest in their spouse. They can prove the relationship with a marriage certificate or domestic partnership registration.

Dependent relationship: Dependents always have an insurable interest in the person whose income they rely on. The dependent's birth certificate or documentation of legal guardianship offers proof of a dependent relationship.

Parents: You can get a life insurance policy for your parents with their consent to cover end-of-life costs like funeral expenses when they pass away.

Business partners: Businesses may be impacted by the death of a business partner, making each partner have an insurable interest in the others. A business license, partnership agreement, or shareholder agreement can serve as documentation of a business relationship.

Corporations: Corporations may be able to obtain life insurance on high-level employees, as the death of one of these employees could significantly impact the company. A corporation can prove this with an employment contract, financial statements that display the employee's financial importance, meeting minutes discussing the issue, and more.

Estate planning: Your estate plan's beneficiaries have an insurable interest in you. Trust agreements and wills can provide proof of this relationship if they name the beneficiaries.

Legal obligations: If someone owes you legal obligations, such as alimony or child support, you may have an insurable interest in the party that owes these obligations to you. Documents like court orders prove this relationship.

Debtor-creditor relationship: If you loan someone money, you have an insurable interest in them since you may not recover your loan if they pass away. You can prove this relationship with a loan agreement.

Calculating coverage needs

When it comes to calculating coverage needs for your parents' life insurance, there are several factors to consider. Here are some key steps and tips to help you determine the appropriate coverage amount:

Understand the Purpose of the Policy

Before choosing a policy, it's important to consider why you're purchasing life insurance for your parents. Are you looking to cover their final expenses, such as funeral costs and medical bills? Do you want to ensure financial stability for your family in the event of their passing? Understanding the primary purpose of the policy will guide you in determining the necessary coverage amount.

Estimate Funeral and End-of-Life Expenses

Funeral costs can be substantial, often amounting to $9,000 or more, depending on the type of service. Additionally, there may be other end-of-life expenses, such as unpaid medical bills or hospice care. By obtaining estimates from local funeral homes and considering these additional costs, you can gain a clearer understanding of the financial burden that life insurance should cover.

Assess Your Parents' Financial Situation

Take into account your parents' financial situation, including any debts, income goals, and monthly expenses. If they have existing assets, such as savings or investments, factor those in as well. This will help you gauge how much coverage is needed to ensure your family's financial stability and cover any outstanding obligations.

Consider Your Family's Needs

Think about the number of dependents your parents have and the financial support they may require. If there are younger children in the family, consider the cost of raising them until they reach adulthood. Also, reflect on any future expenses, such as college tuition, that your parents may want to contribute towards.

Choose the Right Type of Policy

There are different types of life insurance policies available, such as term life insurance, whole life insurance, and final expense life insurance. The type of policy you choose will impact the coverage amount. Term life insurance provides coverage for a specific period, while whole life insurance offers permanent coverage. Final expense life insurance is tailored to support end-of-life costs. Evaluate which type of policy aligns best with your parents' needs and financial situation.

Seek Professional Guidance

If you're unsure about determining the coverage amount, consider consulting a licensed agent or financial planner. They can assist you in assessing your parents' specific situation and guide you in choosing the most suitable coverage amount and policy type.

Use Online Calculators

Online life insurance calculators can be a helpful tool in estimating coverage needs. These calculators take into account various factors, such as annual income, dependents, debts, future expenses, and existing savings. By inputting this information, you can obtain a more precise estimate of the coverage amount required.

Compare Quotes from Multiple Providers

It's advisable to compare quotes from different insurance companies. Obtain quotes for the coverage amount you're considering and evaluate the terms and conditions offered by each provider. This will help you make an informed decision about the most suitable policy for your parents' needs.

Choosing a life insurance policy and company

• Assess your needs and goals: Determine your specific needs and financial goals for purchasing life insurance. Consider your dependents, income, debts, future expenses, and desired coverage amount.
• Compare different types of life insurance: Understand the difference between term life insurance and permanent life insurance. Term life insurance provides temporary coverage for a fixed period, while permanent life insurance offers lifelong protection with a death benefit and a cash value component.
• Calculate the required coverage: Estimate the optimal insurance coverage by multiplying your annual income by 10 to 15 times. Also, consider factors such as outstanding debts, future expenses like children's education, and maintaining your family's current lifestyle.
• Evaluate affordability and premium paying term: Determine how much you can afford to pay as premiums. Consider your budget and financial situation when deciding between term and permanent life insurance. You may need to adjust your budget or opt for a combination of policies to get the desired coverage.
• Select a reputable company: Choose a life insurance company with a strong financial rating, such as an "A" rating or higher, from agencies like AM Best. Ensure the company has a high claim settlement ratio, indicating its ability to honour claims.
• Compare multiple companies and policies: Research and compare different life insurance companies and their policy offerings. Look for companies that offer the specific type of coverage you need, including any desired riders or add-ons.
• Consider customer satisfaction and reviews: Check customer reviews, complaints, and satisfaction ratings from independent sources like the National Association of Insurance Commissioners (NAIC) or third-party sites. Choose companies with a low number of complaints and positive feedback regarding their service, claims processing, and overall customer experience.
• Understand the policy features and fine print: Carefully read the terms and conditions of the policy before making a commitment. Ensure you understand the lock-in period, exclusions, and circumstances under which the claim may not be valid.
• Buy life insurance early: Life insurance premiums tend to be lower when you are younger. Starting early can help you save on premium costs and allow you to add more coverage or riders as your income increases over time.
• Choose a comprehensive plan with appropriate riders: Consider your specific needs and select a plan with relevant riders. For example, a critical illness rider provides a full claim payout if you are diagnosed with a serious medical condition, while an accidental death benefit rider offers additional coverage in case of sudden demise due to an accident.
• Regularly review and evaluate your life insurance needs: It is essential to periodically assess your life insurance coverage as your financial goals and life circumstances change over time. Review your policy at significant life events, such as marriage, childbirth, or any significant changes in your income or expenses.

Filling out an application

Step 1: Gather Information

You will need to provide some sensitive identification information about your parents, such as their Social Security number. It is also a good idea to have some basic health information about them, including height, weight, lifestyle habits, and medical history. This information will be used to assess your parents' coverage needs and determine the cost of the policy.

Step 2: Choose the Right Policy

There are two main types of life insurance policies to choose from: term life insurance and whole life insurance. Term life insurance covers a set period, often between 5 and 30 years, while whole life insurance covers the insured for their entire life as long as premiums are paid. Whole life insurance premiums tend to be higher, but they offer the advantage of never expiring. Consider your parents' age, financial situation, and health when deciding which type of policy is best for them.

Step 3: Get Consent

It is essential to obtain your parents' consent before filling out the application. They will need to sign the application and may be required to take a medical exam, depending on the type of policy and the insurance company. Remember, you cannot take out a life insurance policy on your parents without their knowledge and consent.

Step 4: Prove Insurable Interest

As the beneficiary, you will need to prove that you have an insurable interest, meaning you would suffer financial hardship if your parents died. This may include situations where you rely on their income, would inherit their debts or mortgage, or would be responsible for their end-of-life medical expenses. Proving insurable interest is usually straightforward when insuring a parent.

Step 5: Fill Out the Application

Work together with your parents to complete the application accurately and honestly. Provide all the necessary information, including identification details and answers to any health-related questions. Be prepared for the possibility of a medical exam, especially if your parents are older or have health issues.

Step 6: Choose the Beneficiary

As the purchaser of the policy, you can set yourself and/or other close loved ones as the beneficiaries. Carefully consider who will benefit the most from the policy and make sure to designate them accordingly.

Frequently asked questions