Life insurance is one of those things that is inherently personal. You know your health, finances, and family’s upcoming milestones best, right? Which is why most adults buy life insurance for themselves — they know what they need. But when it comes to life insurance for elderly parents, it’s a whole different ball game.
While it’s true that most people know their own situations best, it sometimes happens that adult children look at their parents who don’t have life insurance and think, “Wow, it would be really great if they had life insurance.”
Here we’ll discuss the ins and outs of buying life insurance for parents: can you do it, how can you do it, should you do it, and more.
Why Buy Life Insurance for Your Parents?
If you’re part of the sandwich generation, you know what it’s like caring for your own family and for your aging parents. It’s not always an easy juggling act, and if your parents don’t have life insurance, it can increase your stress.
What if they have a lot of debt? What if they incur large medical bills toward the end of their life? Do they even have enough funds to cover their own funeral expenses?
When someone has life insurance, all of the above worries can be allayed by that one policy. People who have debt can buy enough life insurance to make sure it will cover it. With whole life insurance policies, the cash value component can be used during the policyholder’s lifetime, which can be called upon should any medical bills pop up. And for funerals, there is life insurance for funeral expenses, which is specifically designed for just this purpose. (Discussed in length further down in the article.)
When someone doesn’t have life insurance, all of these worries come to the forefront. Children, naturally, are the ones who worry most about these things, because any debt or bills will likely get passed to them.
Buying life insurance for your parents can alleviate these worries. And on a practical level, the death benefit can be used to pay for any loose ends that your parents leave behind.
Getting Your Parents on Board
As we said above, life insurance is a highly personalized purchase. It’s not something you can exactly surprise your parents with, nor should you. Mortality and finances are two sensitive subjects, especially between parents and children, so this topic should be approached with care and a high level of emotional intelligence.
But just because some finesse is needed doesn’t mean you should avoid it. Life insurance for your parents can make a big impact on your financial stresses, and this is reason enough to have a conversation.
If your parents are vehemently against it, there’s not much you can do. But in most cases, parents are open to discussing it since they don’t want to burden you with extra bills or financial woes. If you have an open, sensitive conversation, you’re likely to make progress.
Best Life Insurance Policies for Parents
You can apply for most types of life insurance until the age of 80, or even 85, depending on the insurer. As long as your parents are under the age limit, they can apply for most types of life insurance. Below are some of the options.
Term Life Insurance for Parents
Term life insurance is one option you and your parents can look into. Term life insurance, no matter who it’s for, works on the following principle: buy a policy for x amount of years, and if the policyholder dies during that time period, the insurance company will pay out a death benefit to the listed beneficiaries. You can choose the length of the term and the amount of coverage when you apply.
Term life insurance is often known as “pure life insurance,” since it doesn’t come with an investment vehicle like whole life insurance (see below). Whole life insurance also lasts your entire lifetime, while term is only valid for a specific period. For these two reasons, term is usually less expensive and the more popular choice.
However, and here’s where every individual’s situation really comes into play, in the case when someone in the sandwich generation wants to buy life insurance for their parents, term life insurance may not provide them the relief, both emotional and financial, that they need. What can happen is that you can pay for a 10-year term, and your parents will (hopefully!) live beyond that. That’s a waste of premiums and completely defeats the purpose. It’s also why whole life insurance may be the better option in this particular situation.
Whole Life Insurance for Parents
Funeral insurance, also known as final expense or burial insurance, is a type of whole life insurance that’s designated specifically for burial/funeral expenses. According to Lincoln Heritage Funeral Advantage, these expenses can range between $7000 and $12,000.
Funeral insurance is essentially a whole life insurance policy with a small death benefit (up to $50,0000). It’s also easier to qualify for than other types of life insurance. While there is no legal clause to make sure you use the death benefit to pay for funeral expenses, if you’re a child buying a life insurance policy for their parents, the funeral costs are exactly what you’ll want to cover.
If your parents have serious health issues and can’t qualify for funeral insurance, they can get guaranteed issue life insurance. As you can guess from the name, acceptance is guaranteed. This type of policy offers coverage up to $25,000 and comes with a waiting period of usually 2 years. If your parents pass away within two years of purchase from natural causes, you’ll only get a refund of the paid premiums plus interest.
For this reason and the low coverage amount, guaranteed issue should only be purchased as a last resort. Funeral insurance is a better financial option for those who can qualify. You can read more about funeral insurance and guaranteed issue insurance in our blog post here.
Accelerated Death Benefits
The above term and whole life insurance options are good if you anticipate needing financial coverage to cover your parents’ funeral expenses. But what if you anticipate needing money for medical bills or other things during your parents’ lifetimes? In this situation, life insurance with an accelerated death benefit rider may be what you need. This rider allows your parents to use a portion of the death benefit during their lifetimes in case of an emergency. And it’s tax-free.
Withdrawing a portion of the death benefit means there will be a smaller payout when your parents die. But if you anticipate needing the money during their lifetime, it can be worthwhile.
Though it can be hard thinking about your parents’ mortality, as adults it’s important to be practical about financial issues that can arise when a parent dies. Buying life insurance for a parent or parents can be a way of saving yourself from a large financial burden when that time comes.
Since most parents want the best for their children, they will likely be open to the idea. The question of who will pay the monthly premiums is something that should — actually, must — be discussed. If you can afford to pay the monthly premiums for your parents and are willing to, it’s really a gift that you are giving to yourself in the long-run. If your parents can afford it and are willing, they are giving you quite the generous gift. Every family must decide for themselves what’s best for them — and practical.
Still have questions? We have answers! Here are some of the most frequently asked questions regarding life insurance for parents.
Can I take out a life insurance policy for my parents?
You and your parents can discuss life insurance and you can explain why you think it’s important. You can even pay the monthly premiums. But you can only do this in conjunction with your parents, not without their knowledge. Whether you want to buy term life insurance for your parents, funeral life insurance, or other types of permanent coverage, the policy you choose needs to be a joint decision.
If you want to buy life insurance policies for both parents, each one will need a separate policy.
While you can help them fill out the application, they are the ones who will need to provide accurate personal information. If the information on the application is discovered to be inaccurate or false, the life insurance company may have the right to deny the claim.
How do I buy life insurance for my parents?
Buying life insurance for your parents is the same as buying for yourself. You have to do some due diligence and find out which type of policy is the best, and which company offers that kind of policy. Depending on the type of life insurance, the application can be done mostly or entirely online, sometimes without the need for a medical exam. If you need help figuring out which type of life insurance is best for your parents, you can contact a Sproutt insurance advisor for unbiased guidance.
Who should pay for a parent’s life insurance?
This is a question that can only be answered on a family basis. It depends on the budget and bandwidth of your parents and yourself. It is certainly something that needs to be discussed before buying.
How much life insurance should a parent have?
The question of how much life insurance any person should have is highly individualized. For elderly parents, the amount of coverage usually depends on the reason for buying life insurance in the first place. Do you need it to cover outstanding debt? If so, the coverage should equal the amount of debt. Do you need it to cover funeral expenses? Then the coverage should be enough for that.
There are a few things to bear in mind. First, final expense insurance usually has a coverage limit of $50,000. If you need more, you might need a different type of policy. Guaranteed issue only offers up to $25,000, and that should be considered a last resort.
Second, getting more coverage than you need is also an option, but the thing to keep in mind here is that the higher your coverage, the higher your monthly premiums will be. If you’re struggling paying your monthly bills, it’s important to be as exact as possible when it comes to life insurance coverage so you don’t waste precious resources.
How much life insurance should you have as a young parent?
Young parents have different needs than older parents. Usually but not always, they need more coverage, since they want to plan ahead and make sure their kids have enough money to pay for college and weddings. Which means that final expense insurance and guaranteed issue are not likely to meet their needs.
Like elderly parents, the question of how much life insurance young parents should get depends on many factors: how many kids they have, debt, lifestyle, etc. It’s best to consult with a financial or insurance expert to help you decide how much coverage to purchase.
When is the best time to buy life insurance?
The best time to buy life insurance is when you’re young. Of course, most people in their 20s don’t usually think about life insurance, since mortality seems a far-off dream. But when people enter their 30s, the thought suddenly sprouts. By the time people get moving, they’re often in their 40s. By that time, they may have developed health issues that they didn’t have 10 years ago.
That’s why it’s best to buy as young as possible. The younger you are, the lower your rates will be. And you can lock those rates in for a long period of time, even for the rest of your life.
Here’s how it works with age: the amount you need to pay in life insurance premiums goes up with every passing year. The typical rate is an increase between 8% to 10% — so for example, if you get a quote of $30 a month when you’re 30, you can expect a quote of about $32 a month when you’re 31. While $2 a month isn’t a big difference, it can add up over the course of 30 years.
Now, consider what happens if you wait 5 years to get life insurance. Then you’re looking at a jump from $30 at age 30 to at least $44 a month at age 35. That’s already a big difference. So the earlier you buy, the better.
When it comes to age and health, the younger you are, the fewer health complications you are likely to have (statistically). Therefore, the older you get, the more health issues you may develop — and you will be penalized for these with higher monthly premiums.
In short, buying life insurance when you’re younger is the financially savvy thing to do.
Unfortunately, not everyone can afford life insurance when they’re young. When it comes to elderly parents who never bought life insurance, chances are they couldn’t afford it. But as you can see, it can still come in handy, even at an advanced age.