In 2020, 54% of Americans were covered by life insurance policies. However, many people don't know that they can take out a life insurance policy to help cover related debts and costs once their parents pass away.
With the wide range of life cover options available nowadays, finding the right policy for you and your family can be confusing.
This article will discuss the importance of getting life insurance for your parents, what you need to know about your life insurance coverage options, and how to pick the right policy.
Supporting your elderly parents can be costly. It might become even more of a challenge to pay their outstanding bills and potential debts once they’ve passed away.
Purchasing a life insurance policy for them is one way to protect your own financial stability.
Life insurance policies are contracts between policyholders and insurance companies that financially cover people in the event of their death.
Policyholders pay the insurance company a monthly premium and when the policyholder dies, the insurance company pays out a death benefit.
Life Insurance for parents are contracts that guarantee a payout when the insured parent/s die. In return, the policyholder will pay premiums (monthly, annual, or one-off) to their insurance company.
If your parents qualify, buying life insurance for them is one option to recoup part of the money spent on their care.
It can also help cover the costs of final arrangements, such as a funeral or expenses related to end-of-life care.
However, getting life insurance for another person isn't as easy as obtaining life cover for yourself.
By law, you will need to prove an insurable interest in the person who will be covered.
Insurable interest in cases like these, is an investment that a person has made into someone.
Typically, a person can obtain insurable interest if they would be financially affected by the death of the insured, in this case, the parent. Family members usually qualify for automatic insurable interests.
In order to buy a life insurance policy for a parent, you will first need their consent to do so.
You will also need proof of insurable interest and in some cases, the insured will be required to take a medical exam to apply or qualify for insurance.
All of these requirements depend on a variety of factors, such as:
The life insurance coverage amount
The type of policy
Here are some tips if you want to get life insurance for your parents:
Get them involved in the process
Work with a financial advisor
Consider an accelerated death benefit
An accelerated death benefit is a policy that allows you to receive a tax-free advance that can help pay bills for a terminal illness, long-term care, or nursing home expenses.
Buying your parents life insurance is just as important as buying life insurance for yourself. Here are some instances when you should consider getting life insurance for your parents:
Your parents don't have life cover
They can’t contribute toward family finances
They have financial debts you help them with
You are supporting them financially.
You may already be taking on extra expenses as your parents age, such as contributing to medical care, and with life insurance coverage you may be able to recover those amounts after they pass away.
Paying for final arrangements: Many families underestimate or are unaware of the cost of funeral arrangements.
Costs related to a coffin or urn, flowers, transportation, and a funeral home, whether for a traditional funeral or a cremation, might be difficult to meet. Life insurance can help pay some of these costs and relieve the bereaved family’s financial stress.
Paying off Medical Bills: The most expensive years of a person life are often their last.
Depending on the situation, your parent's health may require expensive prescriptions or medical treatments, frequent visits to the doctor or hospital, or permanent around-the-clock care.These expenses can add up and become difficult to cover for a family without life insurance. Taking out a policy could help cover some of these end-of-life costs.
Assisting your surviving parent: It might be difficult for a widow or widower to live alone after their spouse has passed away.
Some people decide to have the surviving parent live closer to other family members, and the process of selling or moving house might be costly.
Purchasing life insurance for your parents is one method to assist with these costs rather than having to pay them out of pocket.
Usually, when a parent or both parents die, the surviving relatives are often the ones responsible for the remaining unpaid bills.
Often, these loved ones do not have the financial resources to cover all end-of-life expenses that their parents may have had.
Some of these end-of-life expenses include:
Here are the steps you should take if you are considering life insurance for your parents:
Depending on the style and size of the funeral, the average cost for a funeral in America is $7,848.
This amount may not include other costs such as transporting the deceased, the use of a funeral home, purchasing a tombstone, or buying a burial spot.
Adding up any debt or end-of-life expenses that the insured may leave behind will also help with choosing an appropriate life insurance policy.
There are many different types of life insurance policies available for your parents, but before selecting one, it is important to ensure that you understand what each one offers and covers.
Just because a plan is cheaper and cost-effective, it doesn’t mean that it will be the best policy for you and your parents. The different types of life insurance plans will be explained later in the article.
If you need help picking a policy or have any questions regarding life insurance, call one of PolicyScout’s professional consultants on 1-888-912-2132 or send an email to email@example.com to find out more.
In most cases, you will need your parents’ consent to buy them a life insurance plan.
This consent is typically given by having them sign an insurance application, and in some cases, by successfully passing a medical exam.
You will also be required to show insurable interest, usually given automatically to family members of the insured.
Typically, the person paying the insurance policy is also the owner of the policy, but your circumstances will determine who the best person is to take ownership of the life insurance plan.
As the point of contact with the insurance provider, the owner must understand the responsibilities related to owning the policy.
If you want in-depth assistance in finding the right amount of coverage you should speak to one of our consultants, who will be able to tell you what kind of coverage you’ll need for specific expenses.
In January 2020 the American Association of Retired Persons (AARP) found that 32% of adults between the ages of 40-64 provided regular financial support to their parents in the previous year.
It was also found that 42% of this generation expected to provide financial support for their parents in the future.
Although paying for life insurance may be less cost-effective than saving for retirement, in some cases having life insurance can reduce the potential costs of covering your parents' end-of-life debts.
It could take decades to save enough money for your parents' end-of-life expenditures to equal the amount of coverage you could get from a life insurance payout.
As your parents approach the end of their lives, you may be forced to take time off work and, as a result, lose money.
Purchasing a life insurance policy may be a viable option for covering that cost and alleviating the financial pressure.
If you expect to be financially impacted or affected by your parents' remaining bills, purchasing a life insurance policy for them can help you avoid future financial hardship.
If your parents already have a policy, you can buy another to meet their financial requirements as they grow older and use the payment to cover end-of-life expenses.
There are many different types of life insurance policies, each catering to different situations and supplying different benefits when the insured passes away.
To find the best provider, take some time to determine which policy would work best for you, your loved ones, and your consenting parents.
Generally, the cost of a life insurance policy increases with age, so buying a plan is cheaper for younger and healthier individuals than it is for older persons.
If you need help deciding which provider you would like to cover your parents, head over to PolicyScout’s Life insurance hub to compare various life insurance providers.
Whole Life: Whole life insurance policies are a type of permanent life insurance, traditionally bought by parents for themselves and often their children. Whole life policies pay out a death benefit when the person covered passes away.
Over time, whole life plans grow in cash value, which you are able to borrow against or withdraw entirely. Whole life insurance policies don’t typically expire as long as the premium is covered.
However, when you buy this plan, you can’t increase the life insurance proceeds (death benefit) in the future.
Universal Life: A universal life insurance policy is a type of permanent life insurance. There are key differences between the two.
With a whole life policy, the provider determines the cash value your plan can grow by, whereas universal life insurance policies build value on a money market interest rate basis.
Universal life policies are more flexible and allow increases to the death benefit of the policy.
Variable Life: Not only does this policy offer a death benefit when the insures passes away, but it can also act as a form of investment.
The policy owner can choose to invest the cash value section of the coverage in bonds, money market funds, or stocks.
These plans are a good way to increase the value of your policy, but if the investment doesn’t show positive results it could reduce the final death benefit.
Term Life: A term life insurance plan is similar to most other insurance policies, but the difference is that the term life plan only offers coverage for a fixed period. There is a start and end date.
If you choose to buy a term life insurance policy, the coverage will only last as long as the set number of years agreed upon in the contract.
Once a coverage period ends, the contract will end with the insurance company and you will have to take out a new life insurance policy.
If a person buys a term life insurance plan with 20-year coverage and the insured dies within the years of coverage, the beneficiaries will be able to collect the policy's death benefit.
However, if the insured passes away after the agreed term has expired, then the contract will end and their beneficiaries will be unable to collect the death benefit.
The costs of life insurance policies are calculated in many different ways, such as age and the overall health of the person insured.
Term insurance is generally more affordable, whereas permanent life policies tend to have higher premiums.
However, permanent life plans usually include additional benefits that most other life insurance policies don’t offer.
You can expect to pay anywhere from $50 a month to over $500 depending on:
Your parent’s age
The amount of coverage
The insurance provider
Their health status
Keep in mind that qualifying for life insurance can be difficult for parents with pre-existing conditions.
Usually, a medical exam is required in order to obtain a life insurance plan.
However, there are some plans that don’t require a medical exam, such as final expense and guaranteed issue life cover.
If you’d like to find the best plan for your situation, it’s a good idea to contact one of PolicyScout’s insurance consultants to help you through the process.
Final expense is a type of whole life insurance with a smaller coverage amount that has less strict qualification criteria.
It works in the same way as other types of permanent life insurance and a person with a final expense life insurance plan pays their insurer a monthly or annual premium.
In return, they get financial coverage known as a death benefit (the money an insurance plan will pay to beneficiaries when a policyholder dies.)
If you’re interested in learning about life insurance and other forms of insurance coverage for yourself or your parent, be sure to check out our life insurance hub.
Our PolicyScout life insurance consultants can also answer questions about coverage, costs, insurance terminology, and more.