Can I buy a life insurance policy for my parents?

If you’re an adult child, you may carry a financial burden when your parents pass away or require extensive care. By taking out life insurance on a parent, you can get the money you need to cover final expenses, outstanding debts and lost income. While an uncomfortable topic, having a thoughtful discussion with your parents about life insurance can help protect their legacy.

Can you buy life insurance for your parents?

You can buy life insurance for your parents, but you need to have an “insurable interest” in their lives. This means you stand to suffer financially from their death.

“Insurable interest can exist based on family relationships or for others that may have a financial loss when someone dies,” said Keith Wallace, senior benefits business development manager at PCF Insurance Services, a national brokerage company. So as their child, it’s easier to prove you have an insurable interest.

Your parents must consent to being insured and may have to take a medical exam. The policy needs to name you as the beneficiary if you wish to receive the death benefit. “Life Insurance can be purchased until age 80 with some carriers with underwriting or for a guaranteed life insurance policy,” said Wallace.

Benefits of getting life insurance for your parents

There are several reasons why you might want to get life insurance on a parent:

  • It eases your financial burden: You can use the life insurance payout to cover costs like funeral expenses, medical bills or debts your parents leave behind.
  • It can help recover lost wages: It can help replace lost income if you took unpaid time off work to be a caregiver.
  • It may come with living benefits: Some policies allow you to access a portion of the death benefit while your parent is still alive if they develop a terminal illness (accelerated death benefit) or need long-term care (long-term care rider). The payout can help cover costs like medical bills, home health care services and other emergency costs without draining your savings.

What type of life insurance do your parents need?

You have several types of life insurance to consider if you’re thinking about getting a policy for your parents:

  • Term life insurance: Term life is typically the most affordable option. It provides coverage for a set period, such as 10 to 30 years, and pays a death benefit if your parent dies during the term. It works well if you just need short-term coverage.
  • Permanent life insurance: Options like whole life and universal life make sense if you want lifelong coverage for your parents. However, they are more expensive. Unlike term policies, they don’t expire, as long as you keep up with the premiums. They also build up cash value, which you can borrow against if needed.
  • Burial insurance: Also called funeral insurance or final expense insurance, this is a small policy meant to cover end-of-life costs. Payouts are usually between $5,000 to $25,000, and a medical exam may not be required.
  • Joint life insurance: With joint life insurance, both of your parents are covered under one policy, typically a whole life policy. There are two coverage options for dictating when the death benefit is paid out: either when the first person passes away (first-to-die life insurance) or after both pass away (second-to-die life insurance). A joint policy can be more affordable than obtaining separate policies for each parent, but they’ll likely both have to qualify for coverage.

How much coverage do your parents need?

How much life insurance you need depends on your budget and how much coverage your parents may qualify for.

“As a rule of thumb, 10 years of expenses is an easy way to get a round number,” says Susana Zinn, an independent life insurance agent based in Miami, Florida.

Wallace gave similar advice: “Your coverage amount will be scrutinized if it is more than the typical 10 times to 15 times [your] annual income.”

If your parents don’t have income or are in poor health, you may be subject to lower death benefit levels.

In this case, Zinn says to “go for a final expenses life insurance policy that will cover the funeral and some other things.”

Cost of life insurance for your parents

The cost of life insurance for your parents will depend on several factors:

  • Their age and health: Premiums are lower when you buy life insurance at a younger age when your parents are healthier. As they get older, rates increase, especially if they develop any medical conditions.
  • The type of policy: Your two main options are term life and whole life. “Term insurance always has the lowest premiums but may cost the most over time as there is no cash value buildup to create a net positive when considering the payments and value,” said Wallace. “Think in terms of owning your home versus renting it.” But, if you’re mainly interested in covering your parents’ final expenses, smaller burial insurance policies may be appropriate.
  • The amount of coverage: The larger the death benefit, the more expensive the policy. Buy only what you need to cover the expected costs.
  • Whether you include riders: Accelerated death benefits and long-term care coverage will increase costs but can provide needed financial protection in an emergency.
  • Your parents’ habits: Premiums are higher for smokers or those with dangerous hobbies such as mountain rock climbing, flying airplanes and traveling to certain international locations.

The best way to estimate costs is to use an online calculator or get quotes from multiple insurance providers. If you’re on a budget, Wallace gave this advice: “Set up a budgeted amount of premiums and use that to purchase as much life insurance as it will buy.”

How to buy life insurance for your parents

Start by having a conversation with your parents to explain why you want to purchase a policy and make sure they agree to being insured. Once you’re both on board, follow these steps to buy a life insurance policy:

  1. Research different types of life insurance: Decide whether you want a temporary term life insurance policy with lower premiums or a permanent life policy that builds cash value. Also, consider policy options like accelerated death benefits or long-term care coverage.
  2. Get quotes: You can get quotes online or with an insurance agent. You’ll provide details on the parent who’s applying for coverage, such as their age, health status and lifestyle, and the amount of coverage needed. Some insurers have life products and features that can benefit senior applicants.
  3. Choose a policy and apply: Look for an affordable policy that fits your parents’ situation. Once you’ve found one, get their permission and submit an application. Remember, your parent may need to take a medical exam or provide medical records to complete the underwriting process.
  4. Choose the beneficiaries: If you’re taking out an insurance policy on your parents, you’ll be considered the policy owner and will be the one responsible for setting up their beneficiaries. These are the people (or persons) who will receive the death benefits when they die. If your parents are purchasing the policy themselves, then they’ll be responsible for designating their beneficiaries.

Once your policy is active, set up automatic payments to pay the premiums on time. Store the policy documents and the insurer’s contact info in a safe place. Also, it may be helpful to review the policy with your parents annually and adjust coverage if needed.

Frequently asked questions (FAQs)

Typically, no, there are no tax implications for you when purchasing life insurance on your parents. The death benefit payout is income tax-free for beneficiaries. But if you sell a permanent life insurance policy for cash or take a loan from your cash value that’s left outstanding, you may owe taxes on the amount received above the premiums paid. Accelerated death benefits are generally tax-free as well. Consult a tax professional if you have questions about the tax implications of getting a life insurance policy on your parents.

Yes, you can purchase life insurance for a parent who has preexisting medical conditions. But it may be more difficult and expensive. Mild conditions like controlled high blood pressure may have a small impact on rates. More serious illnesses like cancer or heart disease can make coverage much more expensive or even unobtainable. Consider guaranteed issue life insurance if your parents are denied coverage due to health issues; these policies don’t require a medical exam (but can still be expensive).

Life insurance premiums for parents increase dramatically with age. The younger your parent is when you purchase life insurance, generally the lower their premiums will be. Premiums can rise once they’re over 50 and as they enter their 60s and 70s due to higher risks. At advanced ages like 80 and above, you may be denied coverage altogether.

The main eligibility requirements for purchasing life insurance on your parents are that you must have an insurable interest in their lives and they must consent to being insured. Depending on the type of policy you choose, your parents may or may not need to complete a medical exam to establish insurability.

Generally, no. You can’t purchase a life insurance policy for your parents without their consent.

“Applicants for life insurance must be informed and sign any life insurance contract,” says Wallace, adding that your parents will typically have to physically sign the paperwork.

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