Buying Life Insurance For Your Parents? – Here’s What You Need To Know

The main reason to consider taking an insurance policy out for your parents is to help cover the expenses after their death. Funeral expenses just continue to rise. And if you, or your parents, don’t have a plan in place to cover them preceding their death, it can cost you thousands. It can also put you into debt long term, depending upon their wishes. Not only are the funeral costs astronomically expensive, but there are a couple of other reasons why you might want to consider a life insurance policy for your parents.

Prior to their death, they may be in a position where they are racking up multiple medical bills for end of life care. This is another area that can quickly throw you into massive debt, so a life insurance policy could help pay for these bills. The other area to consider using your parents’ life insurance for helping the surviving parent. After the death of one parent, your surviving parent may not be in the position to live alone anymore. When this happens, you will need to consider the best place to move them. And moving a parent can also cost a ton of money. This is especially true if you have to move them to an assisted living facility. I can tell you from experience, that some of these can run upwards of $4,000 – $5,000 per month! And I don’t know about you, but I don’t have that kind of disposable income just lying around. All three of these are really good reasons to begin a discussion with your parents about getting a life insurance policy.

There is no real right time to take out a policy for your parents. Every situation is different. But, if your parents are close to retirement, or already there, then that would be a good time to introduce the subject. Some parents have term life insurance policies well into their 50’s or 60’s already. I know that we fall into this category. So we wouldn’t need to discuss another life insurance policy with our kids until our current policies run out. But, it’s a good idea to discuss this topic with your parents to see if they have a policy already. And if they do, when it is set to run out, if it is a term policy. They may have changed their term policy over to a whole life policy already. If so, then it would be good for you to know the details of that policy.

However, if they don’t have either type of life insurance policy, then now is a good time to dive into the subject. When you are approaching this topic with your parents, there are a few key ideas to touch upon.

• Express how having a life insurance policy for them will help take care of them financially if they get gravely ill or when they pass away.
• Bring up the three key items that a life insurance policy could be used for.
• Remind them that this is a good time to discuss their last wishes so you will be ready to fulfill them when the time comes.
• Reiterate that you will be paying for the policy (if they don’t already have one), so as not to burden them financially towards the end of their life.

Once you have relayed all of this information to them, then it’s time to get into the more finite details.

This is not a one size fits all category. Every person and situation will be a bit different. So, this is the first area that would be beneficial to cover with your parents once you have opened up the topic. Depending upon the type of funeral your parents wish to have, will determine how much the costs will be. However, the average funeral costs today are between $7,000 – $12,000. That’s a pretty big chunk of change! And most of us don’t have that kind of money lying around in disposable income. This is just one area to add to the equation when deciding how much coverage your parents need. But, you will also need to discuss how much debt they currently have. Because if they pass away, all of that debt will need to be paid off. Some of the most common items in this category are:

• Auto loan
• HELOC
• Medical bills
• Mortgage
• Personal loans
• Recurring monthly expenses

One of my favorite things to do in this type of situation is to create a spreadsheet. I put in all of the companies that debts are owed to, the account numbers, contact information, the amount owed, and the monthly payment. Of course, this information will change with regard to the last two categories. But, if you have this information at your disposal ahead of time, then it will make dealing with all of these debts so much easier when your parents do eventually pass away.

When it comes to life insurance policies, there are two main types to consider. These are either a term life insurance policy or a whole life insurance policy. They can both cover your parents with similar amounts of life insurance, but they operate very differently. And, where your parents are in life, including their current state of health, will determine which is the best policy for them.

Term life insurance is what we currently have. This is due to the fact that we are younger and have young children still in the house. With a term life insurance policy, you will choose a specific term for the policy to run. The most common term lengths are 10, 15, 20, or 30 years. We both have 30-year policies because we didn’t want to have to redo the policies 20 years in the future at a much higher rate. If your parents are older, then a whole life policy may be a better bet for them.

The first step is to discuss this option with your parents. Then you will need to figure out exactly how much in coverage they will need. After that has been determined, you must decide whether a term or whole life policy is a better option. And last but not least, then you will need to figure out which company offers the best option for you and your parents. Your decision may be more easily decided by whether or not a medical exam is required, and whether or not you want one. And then, of course, the cost is a big factor after all of that.

Life insurance for parents is the same as it is for you. Except that you will be the one taking out the policy (the policyholder) for your parents (the insured). This means you will be paying the insurance premiums and upon their death, you will be the beneficiary of the policy.

As mentioned previously, there are two main types of life insurance policies that you might want to consider for your parents. Either term life insurance or whole life insurance. The biggest determining factor here is age. That is followed by the amount of money you are willing to spend on the policy.  If your parents are younger, say under the age of 50, then you might want to consider a 20 or 30 year term policy. Term policies are typically much cheaper than whole life policies. This is due to the fact that they will only go for a specific term limit and you can’t take loans out of the policy. But, if your parents are older than 50, it might be more beneficial to take a look at a whole life policy instead. These policies are going to be a bit more expensive, but they have more perks for your aging parent.

The black and white answer here is no. If you want to take out a policy for your parents, you will have to have your parent’s permission in order to get a policy. They will also have to sign paperwork before any policy can be established. This is true even if the policy you are purchasing doesn’t require a medical exam.

Insurable interest is when a policyholder of an insurance policy stands to suffer direct financial loss in the event of the insured’s death. Therefore, in this case, you would be negatively affected financially by the death of your parents. And in the life insurance world, there must be a case of insurable interest present in order to take out a policy on someone other than yourself.

Some policies may offer a final expense life insurance cash benefit as an additional option within the policy. If your carrier has this option (also called burial insurance), then the plan will cover their medical bills and funeral expenses after death.  This can potentially be an add-on rider to the life insurance policy you do purchase for only a bit extra per month.