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Actions Should You Buy Life Insurance for Your Parents?
Key takeaways
- Adult children can buy life insurance for parents (with their permission).
- Insurance can go toward final expenses or an inheritance.
- Parents must pass health underwriting to get coverage.
Asking aging parents about their finances—especially life insurance and final expenses—can feel uncomfortable. But it's a conversation worth having, as they might need your help. As an adult child, you can buy life insurance to help your parents achieve important financial goals. Here's what to consider.
Why to buy coverage for parents
One reason to buy life insurance is to cover "final expenses." Funeral costs can easily top $10,000. Yet your parents could also die with significant medical bills, outstanding debt and legal fees to process their wills and estates.
If your parents don't have the money to cover these costs, they could fall on you and your other family members. Life insurance could be the solution.
Moreover, life insurance could help your parents achieve other financial goals, such as leaving an inheritance to charity or funding college for grandkids.
Then too, life insurance can help support your parents in retirement. Say your father receives money from a pension, and your mother depends on that income. If your father dies first, that income stream could stop (depending on the pension's rules), so the insurance policy's death benefit would help provide for your mother.
Similarly, your policy could include "living benefits" that pay out some or all of the death benefit while your parents are still alive, to help cover medical bills if they become seriously ill. (To do so, you—or they—would need to purchase a special rider along with the policy.) You could also set up the policy to pay part of the death benefit if your parents need long-term care in a nursing home or other facility.
Rules and eligibility
To buy life insurance for someone else, you need "insurable interest"—you must show that you would be financially impacted by the person's death. Children automatically meet this definition for their parents.
However, you'll need their permission first: They'll have to sign the application to show they approve. So before getting too far into the process, talk with your parents to ensure they're on board with your plan.
As part of your discussion, decide who will be in charge of paying the insurance premiums. (If your parents want to do so, first make sure they'll have enough financial resources to cover those costs. If they stop paying at some point, they could lose their protection.)
Types of life insurance for parents
As you consider life insurance for your parents, you'll need to decide what type of coverage to buy. There are three main categories:
-
Term,
which expires after a set period but can be the most affordable; -
Permanent,
which won't end as long as premiums are paid and can grow in "cash value," but can be expensive; and -
Guaranteed issue,
which doesn't require a medical exam, but has restrictions and can cost significantly more than other kinds of coverage.
To help your parents choose—particularly among a wide range of permanent policy types with differing features and benefits—consider the pros and cons of life insurance for seniors.
How to apply
If you and your parents agree on a policy(ies), you can formally apply through the insurance company you choose. (Both of you will need to sign the application.) From there, your parents may need to go through "medical underwriting": The insurer could ask them health questions, check their medical records, ask them to submit blood and urine for testing, and have them meet with a nurse or doctor for a physical.
The insurance company will then decide if your parents qualify for coverage—and how much it will cost. Then you can decide whether to accept the offer, pay the first premium and start their protection.
What you can do next
Talk to your parents about their needs, then meet with an insurance representative (like your local Prudential professional) to determine the right amount of coverage for your parents' situation, and to discuss your options. Start the application process as soon as you're ready; the younger and healthier your parents are when they apply, the better their chances of qualifying, and the less they're likely to pay for the coverage that makes the most sense for them.
Footnotes
David Rodeck is a freelance writer specializing in making insurance, investing and retirement planning understandable.
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