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Life insurance for parents

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Becoming a parent can be one of the most exciting times in life, but it can also be one of the most stressful. You now need to think about your partner’s future and your child’s future; would they be financially secure if you were to pass away? Fortunately, life insurance can provide financial protection for loved ones if one parent unexpectedly passes away. Here is what you need to know about getting life insurance as parents, including how to pick the right type of policy for your family.

Why is life insurance important for parents?

Life insurance is designed to protect your loved ones’ financial security if you pass away. Many families rely on two incomes, so when one spouse or partner dies, the survivor can face financial hardship. Having a life insurance policy provides some peace of mind knowing that if one person passes away, the surviving spouse would be able to maintain their current lifestyle, even with a single income.

Life insurance can be a valuable financial planning tool when you start a family. Until your children reach adulthood, they will be dependent on your income. For parents who want to help their children pay for college, for example, having a life insurance policy can be a useful financial planning tool. If you pass away before your child turns 18, your partner might not have the money to support them through college without your income.

The best types of life insurance policies for parents

The insurance market offers several types of life insurance policies, all of which provide a death benefit when the insured passes away. However, choosing the best type of coverage will depend on your circumstances.

Purchasing a whole life, universal life or variable life policy while you’re young will provide you a lifetime of protection while offering an investment vehicle, which you can use when needed or allow to build a higher death benefit. Generally, though, these policies are pricier compared to term life policies.

Buying life insurance isn’t an either-or proposition. You can purchase a cash-value policy when you’re young and single, then add a term life policy when you get married and have kids. Parents often purchase 20- or 30-year term life policies just in case they pass away before their children reach adulthood and independence.

Here are the most common types of life insurance available for parents:

Whole life

Traditionally, parents buy whole life policies, which are a type of permanent life insurance, for themselves and often for their children. Whole life pays out a death benefit when you pass away. Over time, whole life policies build cash value, which you may be able to borrow against or withdraw entirely. Whole life policies typically don’t expire, as long as you continue to pay the premium. However, when you purchase a whole life policy, you can’t increase the death benefit in the future.

Universal life

Universal life policies are permanent like whole life policies, but there are key differences between the two policy types. With a whole life policy, the provider determines the amount of cash value your policy can build. Universal life policies build cash value based on a money market interest rate. Universal life also offers more flexibility as your life changes, allowing you to increase the death benefit of your policy later, provided you pass a medical exam.

Variable life

Variable life policies offer a death benefit when you pass away, but this type of insurance also acts as an investment vehicle. You can choose to invest the cash value portion of your coverage in bonds, money market mutual funds or stocks. These policies can be a good way to increase the face value of your policy. However, if the investments you choose don’t perform well, it could result in a reduced death benefit.

Term life

Term life policies are a popular type of policy for those who only need coverage for a certain period of time. Term life policies pay a death benefit but don’t accumulate a cash value. They also only cover the insured for a predetermined amount of time.

For example, you may choose to purchase a 30-year, $250,000 term life policy. The policy could protect your spouse against the stress of paying the mortgage on a single income if you were to pass away. After 30 years, when the mortgage is paid off, you may no longer need coverage and you let the policy expire. Many policies allow you to renew them at the end of the term without taking another medical examination. However, you’ll likely pay a higher rate based on your age at renewal. You may also be able to convert your term policy to a permanent policy before your term expires.

Buying life insurance for your parents

Buying life insurance to protect your partner and children is important, but you may also want to consider buying life insurance for your own parents, if they don’t already have coverage. Your parents may contribute to your family finances, and you could be strained if one or both of them pass away. Additionally, you may take on expenses as your parents age, such as assisting with the cost of medical care, that you may want to recoup after they pass. Finally, your parents’ life insurance policies could be used as a financial gift to you, your children or to a charity upon their passing.

When purchasing a life insurance policy for parents, you may want to work with them and a financial advisor to determine an appropriate amount of coverage. It can also be a good idea to look for a policy that includes an accelerated death benefit rider, which allows you to receive a tax-free advance to help pay for a terminal illness, long-term care or nursing home expenses.

Frequently asked questions

Do my children need their own life insurance policies?

Many life insurance companies sell life insurance policies for children. However, you do not necessarily need to buy life insurance for your kids — it’s a personal choice. If you and your spouse have adequate life insurance coverage, you can make sure your kids receive the money if something were to happen. Life insurance policies for children can provide an extra layer of security, but the coverage limits are typically very low.

What is the best life insurance company for young families?

There is no single best life insurance company for young families. To find the best provider for your needs, take some time to determine what kind of policy you need, what riders you are looking for and what policy features you’d like to have. You can shop around, but rates for life insurance don’t vary as much between companies as rates for auto or home insurance do. Luckily, life insurance is generally less expensive for younger, healthier individuals. The cost of life insurance increases as you get older, so buying a policy when you are young can help you get a lower rate.

What is the best type of life insurance for aging parents?

Aging parents, especially those with health issues, may want to consider guaranteed whole life coverage. These policies generally have smaller death benefits designed to cover end-of-life costs, but they are guaranteed to be issued regardless of your health. However, life insurance does get more expensive as you age, so older parents may pay more for coverage. Additionally, everyone has a unique situation when it comes to life insurance coverage. Working with a licensed agent could help you find the right type of policy for you.

Written by
Elizabeth Rivelli
Insurance Contributor
Elizabeth Rivelli is a contributing insurance writer for Bankrate and has years of experience writing for insurance domains such as The Simple Dollar, and NextAdvisor, among others
Edited by
Insurance Writer & Editor
Reviewed by
Senior wealth manager, LourdMurray