Should I Buy Life Insurance For My Parents? - Forbes

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It’s natural to want to protect your parents. After all, they raised you.

But does your desire to help Mom and Dad extend to buying life insurance for them? Well, it can. However, you can’t surprise them with the gift of a life insurance policy. You’ll need their permission to purchase coverage on them. You may also need to prove that you would suffer financially if they died—for instance, because you help pay their bills or because you receive financial support from them.

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Do Your Parents Need Life Insurance?

Your parents might not think they need life insurance. But if someone would suffer financially if they pass away, it’s worth a look. Here are some of the ways that life insurance can ease a financial burden after a parent’s death.

Covering final expenses. When you think of final expenses, you most often think of costs related to a parent’s funeral. But a payout from a life insurance policy also could pay off a parent’s remaining medical bills or other debt.
Leaving a legacy. Aside from covering final expenses, a parent’s life insurance payout could enable them to, for instance, donate money to a favorite charity or help put their grandchildren through college.
Boosting retirement income. Let’s say your dad dies before your mom does. When he was alive, Dad received a pension. But the rules of his pension plan dictate that the pension benefits end upon his death, leaving Mom without a vital source of income. The payout from Dad’s life insurance policy could replace some or all of the lost pension benefits.
Providing an early death benefit. Some life insurance policies have “living benefits” that allow for some or all of a policy’s death benefit to be used to cover the medical bills of the insured person while they’re still alive. For example, accelerated death benefits let someone withdraw money from their own death benefit if they’re terminally ill.

Related: Best Life Insurance Companies for Seniors

Options for Parents’ Life Insurance

The available options for life insurance will depend on your parents’ age and health. Choices and affordability diminish with older age and health conditions.

Term life insurance

Term life insurance covers a certain period of time, such as five, 10 or 20 years. The coverage ends when the policy term ends. One of the advantages of term life insurance is that it costs less than other types of life insurance. Term life insurance might be best if your primary concern is covering the years of a mortgage and other debt, or for replacing income after a parent passes away.

Universal or whole life insurance

Universal life insurance and whole life insurance are options for a parent who wants life insurance in place no matter when they pass away. These policies also have the potential to build cash value, although it can take many years with some policies to build any significant cash value.

These types of life insurance can cover a parent’s final expenses or enable them to leave money to a charity or to their heirs. It costs more than term life insurance, but you can depend on getting a death benefit regardless of when a parent passes away.

Related: Best life insurance companies

Guaranteed issue life insurance

Guaranteed issue life insurance doesn’t require a medical exam and you can’t be turned down, so it’s an option for a parent who can’t qualify for traditional life insurance due to health issues. But this option is one of the most expensive ways to buy life insurance.

Guaranteed issue life insurance death benefits are usually very low, between $10,000 and $25,000. In addition, if the insured person dies from anything other than an accident, there’s usually a waiting period of one to two years before a beneficiary can get the full payout from a guaranteed issue life insurance policy.

Final expense life insurance

Final expense, or burial insurance, can pay for a parent’s funeral costs and unpaid medical bills. It’s a whole life insurance policy that supplies a small payout when the insured person dies.

How Do You Buy Life Insurance For Your Parents?

Although you might like to give a gift of life insurance to your parents, it’s not quite that simple.

First, you must obtain a parent’s permission before you purchase a policy that insures them. This means a parent’s signature on an application.

A parent must also be willing to go through the application process. For instance, if an insurer requires a medical exam for a parent to be insured, Mom or Dad would need to agree to that. Note that the insured parent must answer application questions on their own.

Additionally, you must be able to demonstrate that you have what’s known as an “insurable interest.” Translation: You must be able to show that you’d face financial difficulties if the insured parent dies. Children generally have insurable interest in their parents.

Fortunately, death benefits from a life insurance policy are paid tax-free to the beneficiary. An adult child could be both the policy owner (who is ultimately responsible for paying the policy premiums) and the beneficiary.

As always, compare life insurance quotes and benefits from several insurers, regardless of what kind of life insurance you’re buying. And be sure to look into the company’s financial strength so that you can gain assurance that the company can pay all its future claims.