There are many reasons why you might want to buy a life insurance policy for your parents. Perhaps you will need to replace their income once they are gone, or you rely on them financially. It may also be that you want a financial safety net to pay off their debts, end-of-life medical bills or final expenses.<\/p>
Whatever your reason may be, providing financial help for your parents up to and after their death can be a challenge, and life insurance is one way to potentially recoup some of the money you\u2019ve spent on their care or to help pay for final arrangements like a funeral. Some policies allow you to use the benefits before their death under certain circumstances.<\/p>
If your parents have debts or medical bills, a life insurance payout can help settle those obligations, easing the financial strain on the family. It can also serve as a financial gift or inheritance for grandchildren. Overall, it offers peace of mind and ensures that financial responsibilities will be managed.<\/p>
You\u2019ll need to work with your parents to find the right coverage for their situation.<\/p>
You can buy life insurance for your parents, but you can\u2019t do it behind their backs. They must give you permission to purchase life insurance for them and they\u2019ll go through the normal life insurance buying process, which may include a medical exam. And they\u2019ll have to sign the life insurance application.<\/p>
To be a life insurance beneficiary on a policy you buy for your parents, you need to prove that you would suffer financially if they died. For instance, you receive financial support from them or they have a mortgage or other debts you would have to pay after they pass away.<\/p>
This means you have an \u201cinsurable interest\u201d in getting them life insurance. Children generally have an insurable interest in their parents, so it shouldn\u2019t be a deal breaker.<\/p>
When you and your parents realize they need life insurance, it\u2019s smart to move quickly to find the right type of life insurance. The younger and healthier your parents are when applying for coverage, the cheaper their rates are likely to be. And most companies won’t issue policies to people who\u2019ve developed dementia or Alzheimer\u2019s.<\/p>
To simply cover funeral arrangements, consider burial insurance, a life insurance policy with a small death benefit that beneficiaries can use as needed. You can also buy funeral insurance, which sends payment directly to a funeral home for prearranged services.<\/p>
Term life insurance can be a good choice if your parents need coverage only for specific years, such as the duration of a mortgage. Keep in mind that if a term life policy expires before your parent dies, no one receives a death benefit.<\/p>
Permanent life insurance typically doesn\u2019t expire. It also builds cash value over time, which may be helpful if you need to pull money out of the policy before your parents die to help cover bills. But premiums are typically much higher than for a term life plan. Plus, that cash value needs many years to accrue, so if you haven\u2019t had the policy for long, the life insurance cash value is negligible.<\/p>
Buying life insurance for your parents is also an opportunity to think about long-term care benefits. Long-term care can be expensive: Median costs in 2021 were $4,500 a month for an assisted living facility and $7,908 a month for a semi-private nursing home room, according to Genworth\u2019s 2021 Cost of Care survey.<\/p>
If you\u2019re interested in combining the benefits of life insurance with long-term care coverage, you have several options.<\/p>
A long-term care rider added to a life insurance policy will pay a benefit if the insured person is unable to perform a certain number of activities of daily living such as eating, toileting, transferring, bathing, dressing and continence.<\/p>
Riders can work in three different ways:<\/p>
A hybrid insurance policy combines long-term care insurance with either life insurance or annuities. These policies allow more flexibility in long-term care benefits. They are commonly purchased with a single premium, though a couple of companies offer a policy with ongoing premiums.<\/p>
When shopping for life insurance for your parents, ask whether the plans offer accelerated death benefits. These benefits, which may cost extra, can sometimes help cover the costs of terminal illness, a life-threatening diagnosis or long-term care.<\/p>
In essence, your parents can receive a tax-free advance of a portion of the death benefit in case of emergency, so you don\u2019t have to dip into other assets to pay those costs.<\/p>
Keep in mind that using accelerated death benefits will reduce the payout when your parents die. But if you\u2019re buying life insurance for aging parents, you may be glad to have the option to use some of the funds rather than paying out of pocket.<\/p>
Here are some\u00a0types of life insurance\u00a0that can be suitable options for parents.<\/p>
Term life insurance\u00a0has level rates for a certain period, such as five, 10, 20 or 30 years. The coverage ends when the policy term ends unless there is an option to renew. If renewal is an option, expect the premium to be much higher.<\/p>
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 or other debt, or replacing income if a parent passes away.<\/p>
Universal life insurance\u00a0and\u00a0whole life insurance\u00a0are options if you want to ensure a policy is in place no matter when a parent dies. It is important to know that even though universal life is a type of permanent life insurance, some universal life policies have a maximum age specified. For example, the policy may be \u201cup to age 95,\u201d and getting a higher age cut-off is more expensive.<\/p>
Whole life and\u00a0universal life insurance\u00a0policies can potentially build cash value, although some policies may take many years to build significant cash value.\u00a0Cash value life insurance\u00a0allows you to tap into the policy while the insured person is still alive.<\/p>
These types of life insurance cost more than term life insurance, but you can typically depend on getting a death benefit regardless of when a parent passes away. The death benefit can be used by the beneficiary for anything they like.<\/p>
Guaranteed issue life insurance\u00a0doesn\u2019t require a medical exam, and you can\u2019t be turned down, so it\u2019s an option for a parent who can\u2019t qualify for traditional life insurance due to health issues or age. But this option is one of the most expensive ways to buy life insurance.<\/p>
Guaranteed issue life insurance death benefits are usually very low, between $5,000 and $25,000. These policies typically have a waiting period of two years before a beneficiary can get the full policy payout, unless the cause of death was an accident, like a car wreck. Otherwise, if the policyholder dies during the first two years of the policy, the beneficiary may only get a refund of the paid premiums plus some interest.<\/p>
This is called a\u00a0graded death benefit, which helps life insurers protect themselves against severely ill people who buy guaranteed issue life insurance at the end of their lives.<\/p>
Final expense, or\u00a0burial insurance, is meant to pay for a parent\u2019s funeral costs and unpaid medical bills. It\u2019s generally a whole life insurance policy that supplies a small payout when the insured person dies.<\/p>
Once you know the type of life insurance and how much you need, you can start shopping for a policy.\u00a0Compare life insurance quotes\u00a0and benefits from several insurers, regardless of what kind of life insurance you\u2019re buying. Also, be sure to check the company\u2019s financial strength, an indicator that the company can pay all its future claims. For example, an\u00a0AM Best\u00a0rating of A+ means companies have demonstrated a superior ability to meet their financial obligations in the eyes of AM Best.<\/p>
You\u2019ll want to be sure your parents are willing to go through the application process. For instance, if an insurer requires a medical exam for a parent as part of the application, Mom or Dad would need to agree to that. Note that the insured parent must answer application questions on their own.<\/p>
The life insurance company will review their health information, as well as other data, such as driving records. Your parents may also need a\u00a0life insurance medical exam\u00a0as part of the life insurance buying process. All of that information influences the insurance company\u2019s decision and how much it will charge for a policy.<\/p>
During the application process, the life insurance company will want to verify your insurable interest if you are going to buy life insurance for a parent. This may involve providing identification and a phone interview with the insurance company, where you can answer questions about your financial relationship with your parents.<\/p>
When your parent applies for a policy, they\u2019ll need to sign the application.<\/p>
An adult child could be both the policyholder (who is ultimately responsible for paying the policy premiums) and the beneficiary.<\/p>
When considering life insurance for your parents, understand that age plays a significant role in determining the cost. Generally, life insurance premiums increase as someone gets older.<\/p>
For example, a 10-year term policy offering $250,000 in coverage averages around $45 per month for a 50-year-old. However, that same policy can cost an average of $243 per month for a 70-year-old.<\/p>
Beyond age, several other factors can influence the cost of\u00a0life insurance for older adults:<\/p>
The table below breaks down how costs differ by age, coverage amount and term limits to give you an understanding of what to expect.<\/p>