How to buy life insurance for your parents

The unexpected death of a parent can take an emotional and financial toll on your family. If your parents have assets to protect, or if you’re not sure whether they can cover their debt and medical expenses as they age, you might consider taking out a life insurance policy on them. It’s possible — under a few conditions.

Can I purchase life insurance for my parents?

Yes — but you’ll need to do two things when buying life insurance for elderly parents:

• Demonstrate an “insurable interest.” If you can prove that you’ll suffer financially when your parents die, your insurer will be more likely to underwrite a policy. Since debt and final expenses are often passed on to the next of kin, family members often don’t have an issue proving insurable interest.
• Get their consent. You can’t buy life insurance for someone without their knowledge. Your parents will need to approve and sign off on the policy documents before the coverage goes into effect.

Can I buy a policy for my parents if they’re in poor health?

Yes — your options just may be more limited. To begin, look at insurers with lenient underwriting guidelines, and carriers who specialize in high-risk applicants (like seniors).

If your parents have serious health conditions or want to skip the medical exam, consider purchasing a guaranteed issue policy. These policies are open to anyone — no questions asked — but you can expect to pay more for coverage.

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How to buy a life insurance policy for your parents

1. Determine how much coverage you need. Consider your parents’ assets, debt, savings and other financial obligations.
2. Choose a policy type. Term life insurance lasts a set period of time and is ideal for most people, but permanent life insurance offers lifelong coverage and builds cash value over time.
3. Look at available riders. Choose add-ons that are important to your parents, like a waiver of premium or disability rider.
4. Compare multiple quotes. Get quotes from a handful of insurers to ensure you’re getting the lowest rates.
5. Decide on the owner and beneficiary. If you’re taking out a policy on your parents, you may be both the owner and beneficiary. But ultimately, it’s your parents’ say.
6. Apply for a policy. Once you’ve hammered out all the details and chosen a carrier, apply for a policy and submit any supporting documentation.

How much will life insurance for my parents cost?

The cost of life insurance depends on the type of policy, coverage amount, term length and riders, plus your parents’ age, health and other factors.

Say your parents are in their 50s. If you’re footing the bill, expect to pay around $75 to $100 a month for your dad and $65 for your mom if they have separate policies. You could also pay less with a first-to-die policy where your mom might get the payout if your dad dies first, or a survivorship policy that provides you with a payout when both your parents die.

Why should I take out a life insurance policy for my parents?

There are a number of reasons to take out a life insurance policy for your parents. Even if you don’t rely on them for financial support, life insurance offers financial protection that you likely won’t find elsewhere. A life insurance policy can cover:

• Funeral expenses. When all is said and done, funerals can cost $10,000 or more. Life insurance can help cover funeral expenses so that you’re not forced to pay out of pocket. Some policies even offer specific add-ons to cover these expenses — something to consider as you shop around.
• Health care. Whether your parents’ health is declining or they have routine medical costs, life insurance can help cover the bills. Depending on the coverage, your policy might offer an early or increased payout to cover medical expenses. Speak with your provider to determine which policy and riders are best for your situation.
• Debt. If your parents have any outstanding debt, be it mortgage payments, credit card bills or anything else, you may be held financially responsible when they die. Life insurance can provide the means to pay off any outstanding debts. Speak with your provider to determine how much coverage you’ll need to pay off debts, medical and final expenses.
• Replacement income. If you, your spouse or other dependents rely on your parents for income, life insurance might be a good idea. Even if you’re eligible for government assistance programs, a life insurance payout can supplement your income to help you remain financially stable after a parent dies.
• Taxes. If you’re responsible for the inheritance or estate tax when a parent dies, it’s likely you’ll pay taxes. How much taxes you’ll pay depends on factors like their state of residence and net worth. There are often thresholds to be met before any taxes apply, but it never hurts to be prepared. Life insurance can help reduce the financial burden of taxes.
• Legacy. Many people purchase life insurance for their parents if they plan to leave an inheritance or legacy to their next of kin. Whether it’s cash, property or retirement funds, life insurance payouts can provide a substantial amount of savings to beneficiaries.
• Charitable donations. If you or your parents would rather donate to a charity, consider doing so through life insurance. While cash donations go a long way, life insurance payouts can provide a much larger contribution since the proceeds are generally tax-free.

Compare life insurance companies for your parents

If you’re able to prove “insurable interest” and you have consent, compare these life insurance companies’ perks and benefits, and select view rates to get a quote.

Alternatives to taking out a policy on your parents

If you don’t think you’ll be able to cover your parents’ funeral, medical or end-of-life expenses, explore these ways to mitigate those costs:

• Ask your parents to purchase life insurance coverage. Instead of you taking out a policy on your parents, encourage them to manage the process and name you as a beneficiary. Regardless of the type of policy they choose, you’ll receive a guaranteed death benefit when they pass away — as long as they keep up with their premiums.
• Prepay for funeral costs. With the average funeral costs running into the thousands, it might be worth prepaying your parents’ funeral and burial costs. You can do this through a funeral home.
• Set up a dedicated savings account for end-of-life expenses. Contribute to it regularly, or ask your parents to add funds to it if and when they can.

Bottom line

Yes, you can buy life insurance for your parents. The process is similar to purchasing a policy for yourself — but you’ll need to prove insurable interest and get your parents’ consent.

To make sure you”re getting your parents the best possible protection, compare life insurance companies.

Frequently asked questions

Can I take out a life insurance policy on someone I’m not related to?

Yes. However, you’ll need to get their consent and prove that their death or injury would result in financial or other losses to you. Without establishing insurable interest, you’d be able to take out a policy on any random person without their knowledge.

Who should be the beneficiary of the policy?

That’s up to you and your family to decide. While being listed as a beneficiary provides a death benefit payout, you may be responsible for any of your parents’ financial obligations if you’re the next of kin.

Can I borrow from, make payments with or surrender my parents’ life insurance policy?

Yes. If you’re listed as the owner of the policy, you’ll have control of the cash value portion, but you may need permission from the insured to do so. Speak with your financial adviser, insurance provider and parents to determine the best course of action.