Choosing the right life insurance as parents is an important undertaking, no matter how old your children may be. Not only does life insurance provide financial protection when your kids are young, it can also be a critical part of your long-term financial planning as you grow older. Additionally, buying life insurance for your own parents can give you peace of mind regarding their financial future.
Learn more about how to find the best life insurance for parents at any stage, plus how to choose which type of policy makes sense for you and your family.
Buying life insurance for your parents
When a spouse passes away, the surviving family members could lose income and face financial hardship. Likewise, a surviving spouse could lose health insurance following the death of a husband or wife. If an elderly parent needs long-term care, but does not have adequate coverage, the bills can mount quickly, leaving debt for adult children to pay. The reasons an adult child might need to purchase life insurance for a parent are varied. But can you buy life insurance for your parents?
Ideally, parents will purchase adequate life insurance long before they need it. If you are a young parent, you may want to start considering your life insurance needs now. Early preparation can help prevent your surviving spouse or children from shouldering a financial burden should you pass away.
If you are an adult child and foresee a future financial problem for one or more of your parents, you may need to take some action. For example, if a parent does not have a life insurance policy, you may want to purchase one on their behalf, to support your family members should your parent pass away.
You may also consider purchasing a life insurance policy for one or both of your parents that names you as a beneficiary. For instance, if you foresee a time when you will need to quit your job to care for one of your parents, you could end up facing your own financial burden. By purchasing a policy that pays the death benefit to you, you can recover some of your lost income or assets after your parent passes away. To determine the face value of the life insurance policy, calculate how much money you will need to spend on your parents based on an estimated life expectancy. For instance, if you contribute $1,000 per month to a parent’s care, and expect to do so for another 10 years, you may need a life insurance policy with a $120,000 death benefit.
Insurance codes vary by state, but in most cases, you will need your parents’ consent to purchase a policy that covers them. If the insurer requires a medical exam, your parents will likely need to give consent before the assessment. To purchase life insurance for another person, you must also have an insurable interest, which means the insured’s death will financially impact the beneficiary.
Best life insurance for parents
The insurance market offers several types of life insurance policies, all of which provide a death benefit when the insured passes away. Each one comes with different structures and different costs.
Choosing a type of life insurance coverage will depend on your circumstances. Purchasing a whole life, universal life or variable life policy while you are young will provide you with a lifetime of protection, while offering an investment vehicle.
If you want to buy life insurance for your parents, it is best to purchase their policies while they are still relatively young and healthy.
Parents may choose to buy whole life policies for themselves or for their children. Over time, whole life policies build cash value, which you can borrow against or cash out when you no longer need the coverage. Whole life policies do not expire, as long as you continue to pay the premium. However, when you purchase a whole life policy, you cannot increase its face value in the future.
Universal life policies work like whole life policies, but with a few key differences. With a whole life policy, the provider determines the amount of cash value your policy can build. But 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 face value of your policy later, provided you pass a medical exam.
Yet another modern version of whole life insurance, variable life policies offer a death benefit plus an investment vehicle. However, with a variable life policy, you can choose to invest the cash value portion of your coverage in bonds, money market mutual funds or stocks. It is a great way to increase the face value of your policy. However, if the investments you choose do not perform well, it could result in a reduced death benefit.
Over the past few decades term life policies have become increasingly popular for their low premiums. Term life policies pay a set death benefit but do not accumulate a cash value. Additionally, term life policies only cover the insured for a predetermined amount of time. For example, you may purchase a 20-year, $250,000 term life policy. If you pass away during the 20 years of coverage, your beneficiary will receive the $250,000 death benefit amount.
Some term life policies feature a locked-in rate for the entire term, while others allow the insurer to increase the premium as you age. Many policies allow you to renew them at the end of the term without taking another medical examination. However, you will pay a higher rate, based on your age at renewal. Also, insurance carriers often only offer term life coverage up to a certain age, usually around 80.
Why is life insurance important for parents?
Life insurance protects your assets and your family’s future when you pass away. Many families rely on two incomes, so when one spouse or partner dies the survivor can face financial hardship. And when children enter the picture, you must prepare a financial plan that helps them reach major milestones, like earning a college degree. Younger families often opt for a term life insurance policy while the children are still at home. Older parents, on the other hand, may find that purchasing a whole life policy will better suit their needs.
Life insurance is an important part of the financial planning process for parents in any stage. Take time each year to review your financial situation and your responsibilities for your dependents. If you buy a more expensive home, for example, you may want to consider increasing your policy’s death benefit or purchasing an additional policy to cover the cost of the new debt.
Once your children graduate from college, you may think less about paying for their tuition and more about leaving them an inheritance. Retirement accounts and other assets are part of your estate, but remember to include your life insurance policy as well. Depending on the beneficiary, the death benefit is often tax free unless your total estate exceeds a certain threshold. This can be a great, tax-advantaged way to pass on money to your heirs, even if you do not have a direct financial need for the payout.
Life insurance can also be a useful financial planning resource for different types of families. If you are adopting, for instance, a life insurance policy demonstrates to the adoption agency that you have the means to ensure the child is taken care of should something happen to you.
Divorced parents may also need life insurance to cover alimony in case the parent responsible for those payments passes away. It is important to look at the court’s order to see if it is required and how much coverage you need. Finally, blended families can take advantage of multiple life insurance policies to cover children who have wide age ranges. Plus, you can list multiple beneficiaries to dictate exactly which family members receive part of the death benefit.
Frequently asked questions
Can my parent get a life insurance policy with a preexisting condition?
It depends. Some conditions, such as dementia, heart disease and osteoporosis, may disqualify a person from obtaining life insurance. Some types of life insurance policies require applicants to take and pass a qualifying medical exam. If your parents have preexisting conditions, you may want to talk to a life insurance agent to help you understand your options.
What type of life insurance policy should I purchase if I only need coverage for a few years?
Term life insurance provides coverage for a fixed term, often 10 to 30 years. If the insured person passes away during the specified term, the policy pays the death benefit value. Many term life policies also allow you to renew the coverage at the end of the term, albeit at a new rate based on your age.
Will my parent’s life insurance policy cover long-term care expenses?
It depends. Some life insurance policies include an accelerated death benefit rider, which the policyholder can use to pay for expenses related to a serious illness or long-term care. Even if your parent’s policy doesn’t have this rider, you can use the death benefit to pay off long-term care expenses or reimburse their estate for assets used to pay for their care after they pass away.
Do I need to get my parents’ permission to buy them life insurance policies?
Insurance codes vary by state, but in most cases, you will need consent to buy life insurance for your parents.