There’s a candid conversation we all have to have with our parents at some point in our lives regarding things like long term care, overall finances, outstanding debt, and the amount of savings they have. It may feel awkward, but it’s best to have this conversation sooner rather than later, particularly to find out if they have life insurance. Getting life insurance early can help provide for your parents if they face a chronic or critical illness or injury and waiting too long can mean it’s no longer possible.
If they don’t have any coverage, you might find yourself wondering if you can buy a policy for them. Luckily, the short answer is yes; however, there are a few factors you should take into consideration before settling on a policy.
Consent and Insurable Interest
There are two things you must have to buy life insurance for your parents: consent and proof of insurable interest.
Obtaining the consent of the insured is simple enough. All you’ll need is their signature on the application, and you’ll be the owner of the policy and able to make premium payments on their behalf.
Insurable interest means proving that the insured’s death will have a financial impact on you. If it would cause you financial loss, then you have an insurable interest—being the child of the insured fulfills this requirement most of the time.1
How to Determine Coverage Goals
After you’ve confirmed consent and insurable interest, the second thing you’ll want to consider is the amount of coverage your parents will need.
If your goal is only to cover the final expenses—which includes funeral services and some existing hospice and hospital fees that aren’t covered by Medicare—a policy between $10,000–$50,000 should suffice.
If you need coverage beyond these final expenses, you’ll want a different type of policy. For example, if your parents leave you a house with a sizeable mortgage that you’re not prepared to pay off, you’ll want a higher death benefit. If you don’t plan accordingly, the house you’ve been handed could be lost or forced into a sale during an already difficult stage of grief.
As a rule, it’s best to budget a little higher than $10,000 per person, if at all possible; that should be the minimum death benefit necessary to meet funeral expenses and any unforeseen costs.
What Factors Affect Policy Rates?
The following factors will determine what kind of policies and rates your parents will qualify for:
- Height and weight
- Health history
- Marital status
- Tobacco or nicotine usage
- Alcohol usage
- Drug usage
Some policies may require a health exam, while some may not. You may assume that taking a health exam will automatically increase rates, but that’s not always the case. If you bypass an exam, the insurer has a harder time estimating risk, and rates may actually end up higher than they would be if they’d taken an exam. Talk to your parents about their existing health conditions and decide whether they’d like a policy with a medical exam or not.
The Best Types of Life Insurance for Parents
So, which types of policies could be best for your parents? Here are a few options:
1. Guaranteed Issue Life Insurance
With Guaranteed Issue Life Insurance, there are no health qualifications, and your parents cannot be denied as long as they meet the age requirement. The policies range from $5,000 – $25,000, which should be enough for the funeral and a bit extra, making this a nice solution for anyone who needs guaranteed coverage.
2. Simplified Issue Life Insurance
Another no-exam solution, this whole life policy is to be used specifically for funeral and burial costs. Your parents will have to answer a detailed medical questionnaire, but an actual medical exam is not required. With coverage up to $50,000, this type of policy is usually only available to people over the age of 50 and is a great solution for getting insured later in life.4
3. No Medical Exam Term Life Insurance
With no exam, this is a conventional policy that ranges from $10,000 – $1,000,000, which is great if you need higher limits of coverage. While your parents can still be denied for certain health conditions or age, the larger death benefit is worth considering for potential debts and income loss.
Or You Can Help Them Insure Themselves
It’s easy enough to buy life insurance for your parents, but if all else fails, it may be easier to help them buy a policy for themselves. If you can get them to understand the necessity of having a policy in place, they can apply on their own and there’s no need to prove insurable interest.
You can always do the heavy lifting for them by comparing rates, filling out their application, and preparing enough so that all they have to do is sign. Offering to do this will also open an important dialogue about long-term care, wills, executors, and the overall state of their finances. You’ll all rest easier knowing your future will be protected, and you can focus on the good times to be had every time you see each other.