One important question that every American needs to ask their parents is “do you have life insurance?” Whether you are considering life insurance for parents or not, knowing is part of a good estate plan.
This is an awkward question to ask your parents, but your parents might have debts, medical bills, or no savings to cover burial costs. Should they die unexpectedly, who will cover those costs?
It could be you. If their savings are not sufficient to cover any outstanding debts and burial expenses, the money they owe will have to come out of the surviving family members’ pockets. This usually means the duty falls to the mature children of elderly parents.
Why Do People Avoid Conversations About Life Insurance for Parents?
Many people avoid thinking about or buying life insurance because they don’t want to contemplate dying. Other people think that planning for death hastens its coming. Even your parents can find many convenient excuses to avoid the process.
Quick Tip: See how much life insurance might cost for your parents by using the Life Insurance Quote form on this page. Quotes from the leading life insurance companies are displayed instantly on the next page.
Too many surviving children of parents who neglected buying life insurance have incurred serious financial burdens. Quite a few have even found themselves filing for bankruptcy because they could not cover the debts of their deceased parents. If your parents are procrastinating about the process of buying life insurance, you can do this for them.
We will answer all your questions about the process of buying life insurance for your parents. This will include:
- How to determine how much life insurance to buy
- The legalities of buying life insurance for your parents
- Types of life insurance to consider for your parents
- The life insurance process
- Pitfalls to avoid when buying life insurance for your parents
Can Offspring Buy Life Insurance for Parents?
Yes. Of course, you must be an adult as well as a blood relative to do so. Any sibling can buy a life insurance policy for a father, mother or even for both parents.
The process to buy life insurance for parents is not as complicated as you might think. It is just like buying life insurance for yourself with a couple of extra steps.
First, do not do this on your own. There are over 850 life insurance companies in the country. Every company has its own variety of life insurance policies which they offer. Consider this carefully when it comes to knowing how to buy life insurance for a parent.
The underwriting guidelines they use are very different. How life insurance companies rate your parents for a policy can alter very much from company to company. The premiums they charge can also vary quite notably from company to company.
The type of policy you decide to buy can also impact what you pay. You need to be careful and understand the life insurance process to save money and to find the most appropriate policy for your parents because each situation is different.
You could also end up having to spend a lot more money than you would otherwise have to do so. Keep reading to learn how to buy life insurance for your parents painlessly and learn ways to save money.
(Life Insurance Tip) Do not assume your parents are too old, or that ill health will prevent them from finding approval for an affordable life insurance policy. There are multiple life insurance solutions to cover just about any situation.
Why Should Someone Consider Life Insurance for Parents?
First, you cannot buy life insurance for parent if your reasons are to profit from their death. The only reason you should consider to buy life insurance for a parent is because of the possibility of any debts you will have to assume responsibility for when they die.
What debt will you incur if one or both of your parents die?
It is surprising how much of the debt you might have to assume when a parent dies. Even though your parents might be elderly, they could be passing the following significant debts on to you including:
- Replacement Income for a surviving spouse
- Personal loans
- Funeral and burial expenses
- Medical bills
- Estate taxes and estate liquidity
Most of the time the debts fall to the estate before any surviving family members. The estate has to be settled before anyone can inherit.
Please note that a family member cannot inherit credit card debt unless they are also an owner or co-signer of the card. There are cases of credit card debtors trying to convince family members that they are responsible for the debt. (This is illegal, but still happens.)
The reasons and the amount of life insurance your mother, father or both parents will need can vary. Life insurance needs can be as low as $10,000 (for burial expenses only) to as much as $1,000,000 or more.
How Much Life Insurance Should My Parents Have?
The amount of insurance your parents will need is known as an “Insurable Interest”. You have to first fully understand all your parents’ outstanding and potential debts to determine the amount of life insurance your parents will need.
(NOTE) Almost every U.S. state has “insurable interest” laws to protect the interests of those being insured. You must either be a blood relative or have a definite and actual financial interest to buy a policy.
When buying life insurance for a parent, this is what the life insurance company will want to know and ask why you are requesting a certain amount of coverage.
If the amount of coverage you are asking for significantly exceeds the actual amount necessary to cover the insurable interest, you could be raising a red flag with the life insurance company. Your purpose to buy life insurance for your parents should not be to profit from their debts. You could also be declined if the amount you ask for appears too excessive.
Can You Buy Life Insurance on Your Parents Without Their Consent?
No. The only situation where a family member can buy life insurance without requiring consent is where a parent buys life insurance for a dependent child.
In some states, it is a legal requirement that you obtain the written consent of your parents to buy life insurance.
Many life insurance companies will also provide you with a consent form which must be completed and signed by your parents. If your parents are buying a standard life insurance policy which does require a medical exam, the insurance company will require your parents to sign a medical release form. The reason is because the company will need this consent form to access any required medical records from their doctors or hospitals.
Always obtain your parent’s consent before you start the process of buying life insurance for a parent.
How do I Buy Life Insurance for a Parent?
There are 3 approaches you can use when it comes to buying life insurance. This includes buying through:
- A life insurance company agent
- A life insurance call-center
- An independent life insurance agent
First of all, do not begin your search directly from a life insurance company or a life insurance call center agency.
If you approach a company directly and use a company agent (also known as a captive agent), you will be stuck with all the inherent restrictions of that single life insurance company. You will have to accept their underwriting guidelines and the rates they charge. Even worse, they might decline your parents for a policy.
This will force you to jump from company to company. You might have to spend a lot of unnecessary time and effort of applying to multiple companies. Each time you will have to go through multiple steps.
Just because the company that provides you with your car or homeowner’s insurance offers life insurance, doesn’t mean that it’s the best or the most affordable option.
The Problem With Call Centers
Next, you should also avoid those life insurance agencies which are call centers, such as SelectQuote. Companies pressure call center life insurance agents to make sales. They have quotas. They must meet these quotas or get fired. You will not get any depth when it comes to personalized service from a call center life insurance agent.
Often, you don’t even get to speak to an agent. Their site will direct you to a questionnaire to start the process. Their job is to get what information they require and provide quotes form a limited number of life insurance companies.
For the sake of convenience and to get the best policy at the most affordable rate, you should always use an independent life insurance broker first. An independent life insurance agent works for you and NOT the life insurance company.
You get to speak to an actual person from the start and this person will walk you through the entire process. They provide guidance and valuable insight on the most appropriate type of policy.
Why Talking to an Independent Life Insurance Agent is Smart
The most important reason to use an independent life insurance agent is because they have access to dozens of companies. They can focus on specific companies should you require a specific type of policy for your parent(s). This allows us to submit applications to multiple companies and get multiple bids. Taking this approach allows us to find you the best policy and at the lowest possible rates.
(Life Insurance Tip) Always use an independent life insurance agent when it comes buying life insurance for a parent. Call Abrams Insurance Solutions at 858-703-6178 and we will be happy to answer any questions you have about buying life insurance for your parents.
How Does a Life Insurance Policy on a Parent Work?
The issues that are important here is who is going to own the policy and who pays for the policy?
Simply put, you and your parents must decide on the ownership of the policy. This can be either you or your parents.
Whoever is the owner of the policy is the person who is responsible for paying the premiums on the policy.
Keep in mind that you must pay all premiums for a policy on or before its due date. Failure to do so can result in the cancellation of the policy.
You will not have to provide insurable interest if you are buying life insurance on behalf of your parents where they will assume ownership of the policy.
You only have to provide insurable interest if you are assuming ownership of the policy.
The decision as to who owns the policy is important because only the owner can make certain changes to the policy. Deciding on who owns the policy is important because only the owner can change any provisions within the policy including:
- Changing the names of the beneficiaries
- Transferring ownership of the policy
- Adding or deleting any life insurance riders
- Request a rating change with the insurance company
- Lowering or increasing death benefits
The named insured on the policy always remains the same and cannot be changed.
Who Should Be the Beneficiary of Your Parents Life Insurance Policy?
This is another critical decision to make before you buy a policy for your parents. If your parents own the policy, then it is their decision on who they want to help financially.
First, the beneficiary has to clearly be identified by name. It’s not wise to simply use some generic term life “spouse” or “siblings/children”. The reason you want to be specific is because people divorce and have children with more than 1 spouse or other. This can lead to expensive legal complications.
Sometimes, family members fall out and the owner of the policy may not want that person to receive any life insurance proceeds. Failure to be specific can lead to expensive legal complications and tie up the proceeds for years until the courts resolve the matter.
Keep in mind that if your life circumstances change then, you or your parents should review the issue of the named beneficiaries.
Use the following questions to help determine who to name as the beneficiary.
- Would it be better to name a person or consider a trust as beneficiary?
- Are any of the beneficiaries of minor age?
- Who will need financial assistance?
- Does your will correspond with your life insurance proceeds?
- Are there alternative beneficiaries?
- Are there estate tax issues?
Some of the above circumstances may require the advice of your attorney, life insurance agent or financial advisor. Choose your beneficiary carefully and amend your life insurance policy as circumstances change.
Are There Legal Pitfalls When Buying Life Insurance for Your Parents?
There is one situation which can cause you a certain amount of legal and tax headaches if you are not careful.It is known as the “Goodman Triangle.”
In most instances, all payable life insurance proceeds are tax exempt except in one situation. This occurs when the owner, the named insured and the named beneficiary are three different people.
This could happen if you were to buy and be the owner of a policy for a parent who is the named insured, and then you name one of your own children as beneficiary such as your son, for example.
Because you name your son as beneficiary, the proceeds your son would receive would be considered as a gift from you to the son. This is known as a “gift tax.” Your son would be taxed on the proceeds he received because it would be viewed as a gift.
So, if you are the owner of a policy you bought for your parents, you should name yourself as beneficiary, not some other third party. On the other hand, if your parents were both the owner and the named insured, then they can name whoever they want as beneficiary such as either yourself or your son or even both as beneficiaries without any tax consequences.
The owner of the policy, the person named as the insured and the beneficiary should not be 3 different people.
What Type of Life Insurance Can I Buy For My Parents?
This is another important decision because there are many different types of policies and some should only be considered for specific reasons. The types of life insurance which you can select for your parents include:
- Term Life Insurance
- Permanent Life Insurance such as Whole Life, Universal Life and Indexed Universal Life
- No-Medical life insurance
- Simplified Issue Life Insurance
- Guaranteed Issue Life insurance
- Burial and Final Expense Life Insurance
(NOTE) Standard term policies and permanent policies require a medical exam. The exam can be carried out at the convenience of your parent and some companies will send their para-medical technician to their home. The exams take about ½ an hour and are relatively unobtrusive requiring only a blood and urine sample.
Also, life insurance companies will closely look at the health history of your parents. They will consider the following to determine the appropriate health class for your parents:
- Health history
- Medication history
- Smoking status
- Occupation and income
- Foreign travel frequency
- Habits and hobbies
(Life Insurance Tip) If you are looking for life insurance for both parents, consider a “Second to Die” life insurance policy. This simply means that the benefits are payable when the second parent dies. Although more expensive than buying a single policy, it is much cheaper than buying 2 separate policies to cover both parents.
Buying Term Life Insurance for Parents
Term is the most basic and the affordable form of life insurance available for any age. They cover death benefits only.
The coverage amounts range anywhere from $20,000 – $5,000,000. Some companies offer even more. You buy the policy in periods of time such as 10, 15, 20, 25, or 30 years. There are a handful of policies which can cover your parent to age 100.
Keep in mind that when a term expires, you have to renew the policy if you want to continue coverage. Life insurance rates increase with age and are even more expensive for those with health issues.
However, most term policies have a conversion feature which allows you to convert the policy to an equivalent face amount without having to answer any medical questions or undergo a medical exam. The conversion feature is important especially if your parent(s) undergo a serious decline in their health while the term policy is still in force. Otherwise, the premiums could become extremely expensive or the company may decline your parent altogether.
There are cutoff ages for specific term lengths which vary slightly from company to company. Most insurance companies will not offer term policies for those 80 years or older. 30-year terms may not be available for people 55 years or older (depending on the company).
Buying Permanent Life Insurance for Parents
Permanent life insurance policies will cover your parent(s) for their entire life. These policies come in a variety of different types and variations including:
- Whole Life
- Universal Life
- Indexed Universal Life
As these policies have a more complex structure and offer different benefits, you should call Abrams Insurance Solutions first at 858-703-6178. Let us answer all your questions and help you decide which is best.
The difference between a permanent policy and a term policy is that a permanent policy provides not only death benefits but a cash value accumulation feature. These policies are more expensive than term policies because they will pay out at some point.
They may be a better option especially if your parent needs life insurance coverage beyond 30 years. You can choose from both small and large policies. You can also work with an agent to design a custom policy to fit your situation.
The final benefit in buying a permanent policy is that they are an excellent way to provide supplemental retirement income with no taxes and no stock market risk. Permanent policies also have a definite advantage if your parents have a large estate.
Buying No-Medical Life Insurance for Parents
For those who worry that their parents may not qualify for a standard term or permanent policy, no-medical exam policies may be the route to take. Most insurance companies will only ask a few health questions. They do not require a medical exam.
Life insurance companies offer no-medical policies as both term and permanent policies. Most companies offer coverage up to $250,000 and a couple of companies offer even higher amounts of coverage. We know of one company which offers up to $1,000,000 in coverage. These policies have a quick turnaround. Sometimes in as little as 48 hours.
These policies tend to be a bit more expensive because the life insurance company has very little medical information to assess your parent. The good news is that prices are very affordable and not all that much more than what you would pay for an equivalent standard term policy.
Buying Simplified Issue for Parents
This policy is also another form of no-medical life insurance. You can buy simplified issue as both term and permanent policies.
These policies do not require a medical exam, but most insurance companies which sell this policy will ask around a half-dozen health questions or more. For many companies, if you answer yes to any of these questions then they may decline you. Other companies may be more lenient.
Another advantage of these policies is that underwriting is fast. However, some insurance companies may require more medical information from the attending doctors or hospital which may delay approval by several weeks. These policies do not require a 2 year waiting period, similar to what a Guaranteed Issue policy requires (see below).
Insurance companies cap coverage amounts at age 65. The amounts of coverage can be as high as $250,000 with some companies offering face amount up to $500,000. These policies are somewhat more expensive than policies which do require a medical exam.
Buying Guaranteed Issue Life Insurance for Parents
This policy may be ideal for parents who have serious health issues or are elderly. The advantage of Guaranteed Issue policies is that they require no medical exam and ask no medical questions. However, the amounts of coverage available are much smaller and provide around $5,000 – $25,000 in coverage.
Most applicants must be between ages 50 and 80, but there are a few companies which offer coverage up to age 85.
Guaranteed issue policies offer graded benefits. Most life insurance companies require a 2-year waiting period where your parent must survive before the full amount of the face coverage is payable. Should your parent die within the 2-year waiting period, the beneficiary will only be receive the amount of premiums paid to that point plus up to possibly 10% interest.
These policies are also more expensive per thousand dollar unit of coverage than other types of policies.
Buying Burial and Final Expense Life Insurance for Parents
Most of these policies are generally just another version of a Simplified Issue or a Guaranteed Issue policy. If your parents are in relatively good health then you might want to consider a small standard term or permanent policy which require a medical exam instead as they may be less expensive to buy.
Final Thoughts on Buying Life Insurance for Parents
We can’t emphasize enough the importance of always using an independent life insurance agent. Abrams Insurance Solutions has access to over 70 of the best-rated life insurance companies in America.
We can request quotes from multiple insurance companies to find you the lowest rates. Using our expertise can save you both time and money. We are happy to answer any and all questions and can help you decide which policy is the best one for your parents and at the most affordable rates.
Call Abrams Insurance Solutions first at 858-703-6178 if you need to buy life insurance for your parents.