Here at IBUSA…
We’re often asked by clients if they can purchase a life insurance policy on either their mother or father.
This question may seem a bit odd at first, in some cases, it may make complete sense why a financially independent adult might want to consider purchasing a life insurance policy on one or perhaps both of their parents.
In some cases, it’s quite likely that a financially independent adult could face some pretty significant bills associated with the loss of a parent that a properly sized life insurance policy really could help covering.
Which is why…
We wanted to take a moment and discuss how an individual might be able to purchase a life insurance policy on their mother or father.
And what steps they should take to be sure that they buy the “right” type of life insurance policy, which will meet their family’s needs.
In this article, we will address the following questions:
- Can an individual purchase a life insurance policy on their mother or father?
- What is “insurable interest,” and how will it play a role in determining whether or not an individual can purchase a life insurance policy on their parent?
- How can one establish “consent”?
- What types of life insurance policies can one qualify for?
- What steps should one follow to ensure they find the “best” life insurance policy for their needs?
So, without further ado, let’s dive right in!
Can an individual purchase a life insurance policy on their mother or father?
It is not always possible to buy life insurance on someone else.
However, it is possible that an adult child can purchase a life insurance policy on their parent provided that they would be able to “justify” the need for such a policy to a life insurance company.
This is because…
Most (if not all) of the top life insurance companies in the U.S. aren’t interested in allowing someone to purchase a life insurance policy on another.
Unless, of course, the owner of the new insurance policy can demonstrate how they would be “financially affected” by the loss of the proposed insured.
This “financial” burden…
Is referred to as an “insurable interest” and is what every life insurance company will be looking for when trying to determine whether or not an individual can purchase a life insurance policy on another.
What is “insurable interest,” and how will it play a role in determining whether or not an individual can purchase a life insurance policy on their parent?
The purpose of any insurance policy, whether it be an insurance policy on your home, your car, or your parent, is to help protect someone from a financial loss.
This means that insurance is not necessarily intended to allow an individual to benefit or profit from it. Instead, the insurance policy (regardless of what kind it is) is intended to make someone “financially whole” in the event of a loss.
This is why…
If you crash your 2002 Jeep Grand Cherokee in 2020, your auto insurance company isn’t going to pay you the replacement cost of that vehicle with what you originally paid.
Instead, they’re going to look at what a 2002 Jeep Grand Cherokee costs today and provide you with that amount.
Why that’s important here…
Is because, while an individual may be able to document that they do have an “insurable interest” on their parent’s lives, because they aren’t financially dependent upon them, that “interest’ may not be all that large. Which will limit the amount of insurance you would be able to purchase on them.
Which is something…
May present a problem for those looking to purchase a life insurance policy more significant than one might consider necessary just to cover one’s basic final expense needs or burial cost.
But that’s not all you’re going to need to be able to demonstrate before you will be allowed to purchase a life insurance policy on a parent. You’re also going to need to prove to a life insurance company that your mother or father is “OK” with you taking out this life insurance policy on him or her as well!
How can one establish “consent”?
Now, since each life insurance company is going to have a different protocol when it comes time to establishing “consent” depending on what type of life insurance policy you may be trying to buy, we’re going to stay a bit vague on what some life insurance companies may require form you.
If you are applying for a traditional term or whole life insurance policy which will likely require your mother or father to take a medical exam to be able to qualify for coverage, so, consent is pretty much implied once your mother or father is willing to meet with an examiner and allow his or her job.
Can become a bit “tricky” is when someone is applying for a no medical exam life insurance policy or a final expense life insurance policy that aren’t going to require one to take a medical exam to qualify for coverage.
As a result, a life insurance company will need to specifically ask for consent which can take several forms, one which may require the insured to be the actual owner of the policy and/or the initial “payor” of the policy.
Which is just…
One more thing one will want to consider when trying to determine what kind of life insurance policy you want to try and purchase on your parents.
Because while a parent may be willing to allow you to purchase a life insurance policy on him or her, this “willingness” may have its limits. Especially when asking them to take a medical exam or initiate payment in order to qualify or initiate the policy.
What types of life insurance policies can my parents qualify for?
Assuming that one has an insured consent to purchase a life insurance policy on them, what you’re going find is that your insurance options will now be limited to:
- The amount of “insurable interest” that you have.
- As well as what kind of life insurance your parent will be able to qualify for.
This is where…
The age and health of your parent will come into play.
After all, just because you want to purchase a life insurance policy on your parent doesn’t mean that he or she will be able to qualify for the coverage you are looking for.
Things like pre-existing medical conditions and current employment status a well as a host of other issues, will play an enormous role in determining what kind of insurance may be available.
What we can tell…
You for sure is that as long as you parent is healthy, in theory they ought to be able to qualify for a wide variety of different life insurance policies including:
- Fully underwritten term or whole life insurance policies,
- No medical exam life insurance policies,
- And guaranteed issue or final expense insurance policies.
Which is something that you will want to discuss with your agent before you and your parent decided what will work out best for you?
What steps should one follow to ensure they find the “best” life insurance policy for their needs?
Up until now, we’ve pretty much focused on whether or not someone can purchase a life insurance policy on their mother or father.
What we haven’t spent much time talking about is once it has been determined that one individual can buy a life insurance policy on him or her what should the “payor” of this new policy watch out for so that their best interests are protected?
Assuming that you do have an insurable interest on your parent, what that means is that if they were to pass away prematurely, you would suffer from some financial loss.
Which means that if you’re going to go through all the trouble in securing a life insurance policy on them for the sole purpose of avoiding such a loss, you really ought to make sure that this new life insurance policy that your considering purchasing will do precisely that!
Whenever possible, you’re going to want to make sure that you become the owner of the life insurance policy and/or you become an irrevocable beneficiary of the policy that you are paying for so that you can be sure that nothing about the policy can change without your permission.
The good news is…
That we here at IBUSA have plenty of experience helping folks purchase life insurance policies and understand many of the unique challenges buying life insurance on someone else can pose.
So, when you’re ready, just give us a call so that we can help you find exactly what you’re looking for!