You may want to buy a life insurance policy covering your parents and naming you as a beneficiary if you expect a significant financial impact from their deaths. Insuring a parent’s life can pay for burial expenses, fund an inheritance, support a charity, cover children’s college costs and even support a surviving parent after one dies. However, parents have to consent to you or anyone else buying life insurance on them. And you also have to prove how you’ll lose financially when they die. Talk to a financial advisor who may be able to help with insurance decisions like this one.
Can You Buy Life Insurance on a Parent?
Most life insurance policies cover the lives of the policyholders who purchased the coverage and name a spouse or other relative as the beneficiary. Buying a policy that covers someone else’s life is more complicated and not even possible unless certain conditions are met.
One such condition is that the buyer of the policy needs written consent from the insured person or persons. The policy buyer also has to prove that they would somehow be financially impacted by the death of the insured. However, there are situations when insurance is purchased on the life of someone other than the policyholder. Insurance covering a parent is one of the more common examples.
The Pros and Cons of Buying Life Insurance on a Parent
Buying life insurance for a parent can provide significant benefits. However, there are also some downsides to doing this. Here are the pros and cons of getting life coverage for a parent:
Pros include that the insurance benefit can:
A benefit that is specific to buying a policy on a parent, as opposed to the parent taking out a policy on themselves, is that the policy owner and only the policy owner can name or change the beneficiaries.
The downsides of insuring a parent’s life include:
- The insured person must sign a consent form and cooperate with the underwriting process, including getting a medical exam.
- The policy buyer must prove an insurable interest, meaning they would experience financial impact from the death.
- Without consent and proof of insured interest, the policy will be denied.
- As with any insurance, the policyholder has to keep paying premiums to maintain coverage.
- The parent must be legally competent to sign the consent form.
The health of the parent can also be a limiting factor. If the parent is not healthy, the insurance company may refuse to provide coverage or limit the death benefit to an amount that is too small to help much.
How to Determine If Insuring a Parent’s Life Is the Right Choice
Here are some instances in which it may be worthwhile to get life insurance for a parent:
- When the parent lacks financial resources to pay for their own funeral.
- When the parent may insure end-of-life medical costs that they can’t pay.
- When you stand to inherit financial obligations, such as a house with a mortgage.
- If you are a co-signer for a loan with your parent.
- If you anticipate being responsible for the costs of supporting a surviving parent.
In the absence of at least one of these situations or some other source of financial impact from a parent’s death, it’s likely not worth trying to get coverage on the parent’s life.
Even if these circumstances exist, buying a policy on your parent’s life may not be the best approach. An alternative is to have the parent buy a policy and name you as the beneficiary. You can pay the premiums if the parent lacks the financial resources to do so and receive the payout when the parent dies. This avoids the need to obtain consent and prove insurable interest.
What Type of Life Insurance Policy Is Best for Insuring a Parent?
When you’re looking into insuring a parent, there are three insurance options that might be right for you. Here are the three that you should consider:
- Term insurance is likely the best type of insurance to get for a parent. It is one of the least expensive life insurance and has features that make it well-suited to this sort of risk management.
- Final expense or burial coverage is another option. This sort of policy can pay for medical bills and funeral expenses. However, it is expensive.
- Whole life is another popular variety of life insurance. It has a number of features that aren’t necessarily helpful for managing the financial impacts of a parent’s death. And it is usually significantly more costly than term life.
Managing the Cost of Insuring a Parent
To keep the cost of insuring a parent manageable, consider the financial impact of the parent’s death and limit the size of the benefit to the anticipated length of the impact. Paying for more coverage than you need will increase the premium.
Also, choose term life insurance. The premiums on a term policy will likely be lower than on other types of coverage. Finally, start shopping for a policy as soon as you know you will need it. As a rule, the younger and healthier your parent is, the lower the premium will be.
The Bottom Line
You can buy life insurance coverage for parents if you get their consent and can show that you’d sustain a financial loss if they die. Parental life insurance may be a good idea if you expect to have to pay burial costs or medical bills after your parent’s death or you’ve co-signed loans or simply want to provide an inheritance. If you do decide to get a policy on a parent, you will likely want to use term insurance instead of one of the other policy types.
Tips for Estate Planning
- A financial advisor is well-equipped to assist you with decisions about using insurance to manage financial risk. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- You can get an idea of what a $250,000 term life insurance policy would cost for a healthy non-smoker of various ages from SmartAsset’s Term Life Insurance Quotes resource. This helpful tool suggests a range of premium levels for male and female insureds and can quickly connect you with insurance companies for actual quotes.
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