If you've realized that a parent's death would trigger a financial problem, you may be thinking about how to buy life insurance for one or both of your parents.
Reasons you might want to buy life insurance for your parents include:
- To pay for a funeral
- To pay final medical bills
- Because you would inherit a debt; for example, if you co-signed a loan with them
- Because you would inherit a very large estate that would be subject to federal or state estate taxes
Here's what to know:
- You can't buy life insurance on your parents without them knowing. The person being insured must sign the application. And the application process might require a life insurance medical exam.
- If you're the policy owner, you'll need to show "insurable interest," meaning show you would be financially impacted by their death. You can be both the policy owner and the beneficiary.
- If parents are reluctant to start the life insurance-buying process, you can get life insurance quotes for them. You'll need to know current health details (height, weight, recent blood pressure reading, medications and more) in order to get a more accurate quote.
- If you'll be the policy owner, you'll be responsible for premium payments. If cost is an issue for your parents, you can be the one who pays for the life insurance.
- If life insurance money should go to another parent first, a parent could designate a spouse as the primary beneficiary, with you as a secondary beneficiary.
|Policy owner||Beneficiary||The insured|
|The policy owner is responsible for payment and controls the policy. For example, only the policy owner can change the beneficiary. You can be both the policy owner and the beneficiary.||The beneficiary receives the life insurance payout when the insured person dies.||The person whose life is insured. The insured person can also be the policy owner. The insured person cannot be the beneficiary.|
Types of life insurance policies for parents
The best choice for life insurance will depend on the financial obligation that needs to be covered. For example:
- Choose whole life or universal life insurance if you need a life insurance payout regardless of how long they live. For example, if the life insurance is to pay for funeral costs and final expenses, whole life or universal life are suitable choices.
- Choose term life if you only want to cover a debt with a finite end. For example, if you co-signed a parent's mortgage, and there are 10 years of payment left, they could buy a 10-year term life policy.
- Choose second-to-die life insurance (also called survivorship life insurance) if you need a payout only when both parents are deceased. These policies are mainly used by couples who are passing large estates to adult children. The life insurance money is used for estate or inheritance taxes so that heirs don't have to sell off assets in order to pay the tax man.
Starting a discussion about buying life insurance can be difficult. There may be other end-of-life decisions that are needed, too, such as:
- A living will. This specifies wishes about medical treatment and whether they want life prolonged.
- Durable power of attorney: This names someone to take care of a parent's finances if they cannot do so or don't want to.
- Health care power of attorney. This names someone who will make medical decisions if they are unable to.
- Medical-information release: This lets a parent's doctor share medical information with you.
The AARP has an extensive Planning Guide for Families that includes tips for starting conversations about end-of-life decisions.