Can I Get Life Insurance for My Parents?
While getting a life insurance policy on your spouse is common, it may not have occurred to you to get life insurance for your parents. But if you help your parents with their expenses or currently receive some financial support from them, buying life insurance for your parents could make sense.
Essentially, the more tied your financial situation is to your parents, the more important life insurance for your parents may be. In fact, if you intend to be the owner of the policy, before you can buy life insurance for your parents you’ll need to prove you have an “insurable interest” in them, meaning you would suffer financially as a result of their death.
Life insurance for your parents can help ensure your own financial plan isn’t strained after they pass away.
Why life insurance for your parents can make sense
One of the most obvious reasons people may look into purchasing life insurance for their parents is to pay for their parents’ funeral expenses, but there are other reasons and costs to consider.
End-of-life expenses for a surviving parent
With few people financially prepared to cover expenses like long-term care and nursing care, it’s likely that your parents may not have enough retirement savings to cover end-of-life expenses for both parents. A death benefit from life insurance for your parents can help the surviving parent pay for long-term-care expenses, such as paid caregiving, that they may not otherwise be able to afford.
If your parents provide childcare or other types of household help for your family, you’ll likely have to pay for those services after they’re gone. The proceeds from a life insurance policy on your parents can provide a financial cushion to hire paid caregivers when the time comes.
Leaving a legacy
If your parents want to create a legacy for their grandkids, life insurance for your parents can be a great way for them to leave something behind for your kids that can help cover future costs like college, a first home or a wedding.
If you inherit property that still has an outstanding mortgage, the death benefit can also help cover the cost of the home loan.
How to talk to your parents about life insurance
If your parents are not familiar with the benefits of life insurance, they may be resistant to the idea of you buying insurance for them. But you cannot buy life insurance on someone without them knowing. So before buying life insurance for other people, even your parents, you need their consent.
Earning your parents’ consent
When discussing life insurance with your parents, it can be helpful to show them how life insurance can provide financial protection for the loved ones they leave behind.
They may not have considered how much it might cost for a surviving spouse to pay for long-term care later in life, or the financial implications of unpaid debts or mortgages on other family members if they die sooner than expected.
Connecting with a financial advisor can help you explain the benefits of life insurance to your parents so that they can see its value within a financial plan.
Preparing your parents for health examinations
Insurance companies typically use a medical exam in their underwriting process to set the premium for a life insurance policy.
Your parents should expect to provide a urine sample, have their blood drawn, and have their blood pressure and other vital signs checked.
Uncontrolled high blood pressure, high cholesterol, smoking, diabetes or any other serious medical condition can increase your parents' life insurance premiums, and in some cases could mean they can’t get insurance.
RELATED CONTENT: Our Life Insurance Guide can help you learn more about life insurance and how it can benefit your financial plan.
Life insurance policy options for parents
There are several types of life insurance to choose from that may make sense for your parents: term life, whole life, guaranteed life and final expense insurance.
Term life insurance
If you're only looking for coverage for a limited time, term life insurance can be a good choice. The premiums for term life insurance are more affordable than for whole life.
Whole life insurance
Whole life insurance is a type of permanent life insurance, meaning it provides coverage that will last until the insured person dies as long as premiums are paid. It also accumulates cash value that could be used a source of liquidity later1.
Guaranteed issue life insurance
Because guaranteed issue life insurance does not require a medical exam, it’s often considered by people who would be unable to qualify for life insurance policies that require the exam as part of the underwriting process. However, there is a waiting period before you’re eligible for benefits.
If your parents die during the waiting period, the amount you paid into the premiums would be returned, but no death benefit would be paid out. Also, the amount of death benefit you can get from guaranteed life insurance is limited. So if your parents can qualify for term or whole life insurance, those tend to be better options.
Final expense insurance
Final expense insurance is often used to describe a whole life insurance policy with a small death benefit intended to cover funeral costs and end-of-life medical bills.
Technically, the death benefit from a final expense insurance policy doesn’t have to be used for funeral expenses; the beneficiary can use it however they’d like. But because final expense insurance is easier for people with poor health to qualify for, its premiums can be more expensive than a typical whole life policy. So if your parents qualify for a whole life policy, there’s no reason to get additional final expense insurance.
Tax implications when purchasing life insurance for your parents
Life insurance death benefit proceeds are typically tax-free.
So if you are both the policy owner and beneficiary of your parents' life insurance policy, taxes on the death benefit likely won’t be an issue; the same applies if your parents are the owner/payer of the policy and you or your family members are the beneficiaries. However, it’s always a good idea to talk to a financial advisor to help you understand life insurance options for your parents and how they could impact both of your financial plans.
1Using cash values through policy loans, surrenders, or cash withdrawals will reduce benefits and may affect other aspects of your plan.
Take the next step
Our advisors will help to answer your questions — and share knowledge you never knew you needed — to get you to your next goal, and the next.Get started