Buying Life Insurance for Your Parents
(A mound of debt should be the least of your concerns.)
Written by
Maggie Tiede is a writer and blogger based in Saint Paul, Minnesota. Maggie has worked as a freelance writer since 2013, when she began reporting on politics, local events, health, and human interest for the Grand Rapids Herald-Review.
Reviewed by
Neel Lane is an independent contract paralegal who specializes in Medicaid and VA benefits. He helps people access and maximize the benefits that they're entitled to. He has over 30 years of experience in this area.
Parents are total rock stars. They spend what seems like thousands of years wiping tushes and helping with pre-calc homework, yet they still claim to like you. What would you do without them?
Unfortunately, barring some space-time continuum freakiness, they’re also older. And, most often, older = closer to “the end.” A huge bummer, but it’s a reality. And we’re here to help you get real.
Our independent agents are always ready to shed some light on your options in dealing with their loss. One option worth considering is to take out life insurance for your parents. Let’s talk about it.
What Is Life Insurance for Your Parents?
Life insurance is designed to cover costs after someone’s passing (like the funeral, medical bills and library fines) AND to help support their dependents with all the leftovers.
But if your parents don’t have life insurance, or enough of it, and you’re worried about what kind of mess they might leave behind, you can take out a policy for them.
BUT, there are a few teeny-tiny caveats:
- You’ll need your parents’ permission (insurance companies won’t let you do this all hush-hush)
- You’ll need their medical documents
- You’ve gotta prove there’s an insurable need
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Why Buy Life Insurance for My Parents?
Glad you asked. There’ are a couple of good and smart reasons to buy life insurance for your parents The first is to cover their estate taxes. The second is to support their dependents. Here, the benefits totally outweigh the not-benefits and you can go full steam ahead. Let’s break these scenarios down:
- Estate taxes: If your parents are wealthy, their estate will be taxed when they are “no longer.” You might have to break up their businesses or sell off all their sweet stuff to pay for that. If you go the life insurance route, the beneficiary can elect to cover those costs instead and you can keep those treasured assets in your family.
- Dependents: If you’re reading this, you’re an adult. (Probably.) But what if your parents have young and/or disabled children or other dependents? You might be responsible for their care. Life insurance can help ease the financial burden, especially annuitized insurance.
Why NOT Buy Life Insurance for My Parents?
First, if you buy insurance for your parents when they are older, the insurance companies will have less time to collect premiums before “time’s up” and they have to pay out. This drives premiums up and benefits down, and that’s what they call a good old-fashioned lose-lose situation.
Second, because death is unpredictable. Heck, your parents could live way longer than you think they will, which is great and all, but you could get stuck paying those high premiums. Bummer.
Third, because you can’t just say, “I want money when my parents pass” and get it. You have to prove there’s an “insurable need”: a real reason you need the life insurance. No good reason means no insurance.
And the fourth reason is that there are other options out there. Like these:
- Prepaid funeral arrangements: Great if you’re worried about funeral costs. This option delivers as part insurance and part contract with a funeral home. It lets you prepay for a parent’s funeral now so you’re not hit with big costs later. An insurance agent can set this up for you.
- Investing and saving: Great if you’re worried about your finances after your parents pass. Your return will likely be better and more predictable. You’ll skip life insurance red tape, too. A financial planner can help with this.
How Does Buying Life Insurance for My Parents Work?
Deciding whether or not life insurance is right for you and your parents is the hard part, but getting it is pretty easy.
First, you’ll need to talk with your parents and get the okay to take out life insurance for them. This kind of convo is never easy, but imagine how they felt when they talked about “the birds and the bees” with you.
Next, you’ll contact an insurance agent. They’ll dig up a bunch of options and help you pick a policy. They’ll also help submit your parents’ medical documents and any other information you’ll need for approval.
After a few signatures *DING* you’re all set.
What Does Life Insurance for My Parents Cover?
It depends on the policy you choose and why you need the insurance. Here’s a smattering of things your policy can be designed to cover:
- Funeral costs (but remember that a prepaid funeral may be a better option)
- Support for the surviving parent after the first “leaves this world,” especially if you’ll be the caretaker for the surviving parent
- Support for any younger and/or disabled siblings and any other dependents your parents could leave behind that you’d be responsible for
- Estate taxes, only if your parents leave behind a business or other big assets
What Kind of Life Insurance Is Best for My Parents?
Any policy can be a good fit depending on your needs, but there are a few standouts (i.e. second-to-die insurance is particularly good for covering estate taxes). Here’s a quick what’s what of life insurance types:
- Term: Basic, vanilla life insurance. Costs will rise with age, bad health and other factors.
- Whole: A hybrid “kind of” savings account/insurance policy. Premiums for whole-style policies usually start out higher than for term policies, but they won’t rise over time.
- Variable: A hybrid investment/insurance policy. Will shrink or grow depending on the market.
- Second-to-Die: A two-person policy. Pays out when the second person dies. Best when one person is in poor health, since the healthier person will drive down costs. Also best for paying out estate taxes (which are only due when the second person in a marriage “moves on”).
- Indexed Universal: Like a variable policy, it’s a hybrid investment/insurance policy. It’s tied to the stock market, but involves less risk than a variable account, since it only invests yearly interest and not the entire amount of the policy.
- Universal: Like whole policies, it’s a hybrid “kind of” savings account/insurance policy. Offers more flexibility (but also responsibility) than whole policies.
- Annuitized life insurance: Converts your lump sum payout into equal payments received for a certain number of months or years.
FUN FACT: Any life insurance policy can be annuitized.
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Our independent agents shop around to find you the best coverage.
How Much Does Life Insurance for My Parents Cost?
Costs vary wildly, especially if one or both of your parents is in poor health. Expect to pay a lot. You could even pay more in premiums than the death benefit is worth, which is why taking out life insurance for your parents is sometimes the wrong option.
In any case, talk to your agent about your options and they can help paint a nice, clear picture of your options to mull over. They’re artists like that.
The Awesome Benefits of an Independent Agent
Independent agents work for you, not a big insurance company. They're not bound by exclusive contracts and can search high and low for what you need. That means you can trust that you’re really getting the right option for you. How sweet is that?
Finding Life Insurance Quotes for Your Parents
Our independent agents will review your needs and help you evaluate which type of life insurance makes the most sense for your needs. They'll also compare policies and quotes from multiple insurance carriers to make sure you have the right protection in place. For you AND your parents.