Life Insurance for Parents: 3 Tips for Buying a Policy

Your parents have spent most of their lives taking care of you emotionally, socially, and financially. As they get older, sometimes the roles can shift and you will probably start thinking about how you can take care of them if you haven’t already.

One of the ways that you can take care of your parents financially is by helping them buy life insurance, or by buying a policy for them. Buying life insurance for your parents can help you be prepared for the worst. Knowing that you won’t have to deal with financial stress during a really terrible time can help your parents have greater peace of mind as they age, and of course, it will help you in the long run, too. 

There are some things you need to know if you want the policy you choose to have the best benefits for your family. In this article, we’ll talk about why your parents need life insurance and give you three tips on how to talk to them about it, including a few special considerations you’ll need to think of to make this decision fit your parent’s needs best.  

Why Should You Buy Life Insurance for Your Parents?

Thinking about life insurance for mom and dad is a relatively new idea for some of us. For others, it’s a familiar concept but the details might still be a bit fuzzy. If that’s the case, you may want to start your conversation by going over some key terms to help you talk about life insurance like a pro.

Some of you might be part of the “sandwich generation,” meaning that you’re caring for your aging parents while also caring for your young children. This means that you have a lot of life details and paperwork to keep straight for everyone under your care. It’s important to do everything you can to ensure you’re caring for everyone to the best of your ability while also taking care of yourself and maintaining manageable stress and activity levels. 

There’s nothing wrong with making big decisions to outsource some of the financial stress of parent care by creating a future financial safety net for them and yourself. This is something that a life insurance policy can help with when you’re trying to care for your elderly parents and maintain all of your other responsibilities, too.  

Funeral Arrangements

No one wants to think about family members passing away, especially not their mom or dad. However, when you’re grieving the loss of a parent, the last thing you’ll need is the additional stress of trying to figure out how to pay for funeral expenses. The cost of funerals can be surprisingly high. Funeral costs are also an expense that has to be paid, no matter what. 

If your parents have life insurance, the benefit paid out from the policy can be set at an amount that can cover any of the associated end-of-life expenses. This can make a very distressing time a little easy to deal with practically.  

Medical Bills

If your parent has a long illness or chronic condition that leads to them passing away, the medical bills they leave behind can be quite high. If hospice care is included, the resulting debts can be a huge stressor in addition to the grief of losing a parent. 

Again, the associated stress from worrying about money while grieving is something to be avoided if you can. This is something else that the payout from a life insurance policy can help with. Be sure to factor the cost of this type of care into the amount of the policy you purchase or include it in riders.

If your parents have whole life policies, you can withdraw the policy’s cash value while they are still living to cover emergency medical bills as well. This can lower the amount of the benefit payout after their passing, but it’s a helpful option in case of a severe medical issue that needs expensive attention. 

Care for the Other Parent

If one parent dies, the other parent will still have living expenses to think about. If this is not something that you can assist them with easily using your own income, a life insurance policy is a good way to ensure that your remaining parent is well taken care of after their spouse passes away. This can be one of the best ways that you can care for your living parent financially.

Maintaining financial stability is extremely important in times of grief. A life insurance policy can keep your living parent stable and secure while they deal with the loss of their partner. It can also relieve you of the potential financial stress of taking care of them so that you can focus your energy on other types of necessary support and your own recovery. 

These reasons for needing life insurance for your parents can make for a potentially upsetting conversation. It’s still important to have a discussion. Next, we’ll give you some tips for how to talk to your family about buying life insurance for your parents. 

How To Talk to Your Parents About Life Insurance

If your parents are older, they’re probably already thinking of the legacy they want to leave for the family. They may already have purchased life insurance policies as a part of their retirement preparations and may be more open to discussing an additional policy than you think. Still, you need to be prepared with the right details so that the conversation is productive and gets the best results. Here are 3 tips for how to discuss life insurance with your parents in a way that will help you choose the best policy. 

1. How Much Life Insurance Do Your Parents Need?

This is probably the most difficult part of the conversation, but it’s also the most important. You’ll need to candidly discuss end-of-life expenses with your parents and come up with a definite number. Include things like medical bills, outstanding debt, and all possible funeral expenses. That means you’ll need to think about the cost of a burial plot, casket, headstone, use of the funeral home, and any funeral services that your family wants to have. 

Once you total these things up, you’ll have an understanding of the amount of life insurance you’ll need to purchase. Don’t be surprised if the number is much higher than you initially expected. We don’t often think of funeral expenses until someone close to us dies, so the associated costs are usually unfamiliar. 

2. Who Will Pay the Premiums and Own the Policy for Your Parents?

It’s entirely possible for your parents to purchase their own life insurance, pay the premiums and name you as their beneficiary. This is probably the easiest way to manage life insurance for your parents, for both you and them. 

However, if they’ve already purchased policies on their own or if they aren’t in a position to afford the premiums on a policy that covers the necessary expenses you’ve already discussed with them, there are a few other options. 

If your parents have purchased life insurance policies and are having a hard time keeping up with the premiums, in most cases it’s okay for you to step in and pay the premiums for them, provided that you are able to. 

You can also purchase an entirely separate life insurance policy on your parents, but there are a few things you’ll need to do that aren’t required if you’re simply purchasing insurance on your own life. 

The first thing you’ll need is their consent. You’re not allowed to take out life insurance on your parents (or any other adult) without their express permission, and they’ll need to be involved in every step of the policy underwriting process and sign the application.

The other thing you’ll need to both have and prove is an insurable interest. Basically, this means that in order to take out life insurance policies for another person, you have to prove that you would have financial difficulties if they died. Another way to explain this is that in order to purchase a life insurance policy on someone else, you need to prove that you will not benefit from their death in any way. Usually, it’s fairly easy for family members to prove that they have an insurable interest in each other. 

If you purchase a life insurance policy for one or both of your parents, as the policyholder you are responsible for paying the premiums for the policy. Your parents aren’t financially responsible for paying the policy premiums even though they’ve given their consent and signed the application. 

3. What’s the Best Life Insurance Policy To Get for Your Parents?

Once you have consent and prove your insurable interest, you should apply for and purchase a life insurance policy for your parents. But what kind of policy should they have? Choosing a life insurance policy can be overwhelming, especially with so many different options available. You’re not alone if you aren’t quite sure how to start.

There are a few different options for life insurance policies for your aging parents. The one that you choose depends on their age, health, and lifestyle. 

There are two main types of life insurance you need to be aware of. Depending on how old your parents are, you can opt for either whole life or term insurance. There are pros and cons to each type of insurance for everyone, but when you’re specifically looking for insurance for parents, there are some specific things to consider. Term life insurance covers a specific period of time—usually a couple of decades. Whole life insurance is permanent. 

Term Life Insurance

While term life insurance is generally a much more cost-effective option, it does expire after the term is over. This means that if you are relying on life insurance to cover a parent’s funeral expenses and they pass away after the term is over, you won’t receive any money to help with those expenses. 

However, suppose your parents have made arrangements for end-of-life expenses but have a mortgage or other large expense that you would have difficulty paying off. In that case, it’s a good idea to get term life insurance to cover this debt if a parent passes away unexpectedly. 

Whole Life Insurance

Whole life insurance, on the other hand, is permanent and never expires. While it costs more, you’re also guaranteed to receive a death benefit as long as you pay the premiums in full and on time. If you’re going to be responsible for funeral expenses, taking care of your other parent, or any other expense that will occur after one parent dies, whole life insurance can be a better option. After all, it’s impossible to know when a parent will pass away. You can only be prepared for when it does happen.  

Additional options available with some life insurance policies are worth discussing with your parents and life insurance provider. These are called riders. Riders are additional portions of a life insurance contract that extend coverage in specific ways to meet you and your parent’s needs more exactly. Some life insurance policies have options for riders that include long-term care insurance, funeral costs, and other expenses in addition to the standard death benefit coverage. 

One rider that is often available is long-term care coverage. We briefly discussed the possibility of needing financial resources in the case of a parent having a long-term or chronic illness that results in their passing. Long-term hospital care or hospice services can be quite expensive, but long-term care coverage can help lessen those costs.

If cost is a concern, it is possible to purchase a small, inexpensive life insurance policy with a small death benefit payout. This payout is small because it’s intended to be used just to cover funeral costs. 

These policies are usually referred to as burial insurance policies. There are also funeral insurance policies that are paid directly to funeral homes and are not usually under the umbrella of life insurance. It’s important to ask specific, direct questions when setting up a burial insurance policy to be sure you’re getting the right type. 

Conclusion

It’s upsetting to think of your parents passing away, and no one wants to have conversations about it. Purchasing life insurance for your parents is one way that you can think ahead and make a terrible time in the future a little less stressful and a little more financially stable. 

Purchasing life insurance for your parents can help with funeral expenses, caring for the surviving parent, covering outstanding medical bills or a mortgage. Figuring out how to do this for your parents is a distressing conversation, but an extremely necessary one that can make things more manageable for you when the time comes. If you are beginning to consider buying life insurance for your parents, doing your research can help you make the best choice.

Sources:

Why Buying Life Insurance for Your Parents Can Make Financial Sense | Nerdwallet

Should You Buy Life Insurance for Your Parents? Probably Not | Business Insider

Can You Take Out Life Insurance On Someone Else?| Forbes

The Conversation Project - Have You Had The Conversation? | The Conversation Project