Purchasing a life insurance policy on your parent may seem like a difficult decision to make, but it can provide peace of mind for both you and your family. It can ensure that your parent’s loved ones are financially protected in the event of their passing and can also provide a sense of security for you and your family as you navigate the challenges of aging.

It’s important to remember that it’s also a responsible and loving decision that can ease the burden of potential future financial stress.  For many, it’s a way of showing your love and care for your parents and for your family.

Reasons for purchasing a life insurance policy on a parent

Getting life insurance on someone else can be difficult but it really depends on your relationship to that person and establishing a need.

As a parent ages and their children become older and less dependent upon them financially, it can become more difficult to see why the need for insurance can remain strong.

After all, the purpose of life insurance isn’t to make one’s beneficiaries (or kids) rich, its purpose is to make them “financially whole” in the event that you pass away prematurely.  As such, the original reasons for owning a life insurance policy will likely change as well.

And while some may say that the need for life insurance disappears, others will come to the understanding and realization that while the purpose of insurance may have changed, the need hasn’t.

So here are a few examples of why someone may want to purchase a life insurance policy on their parent:

1. Final expenses: As we age, the likelihood of unexpected medical expenses and end-of-life costs increases. A life insurance policy can provide your aging parent with the financial resources they need to cover these expenses, ensuring that they can have a dignified and peaceful death.
2. Estate planning: As an aging parent’s assets and estate are being passed on to the next generation, life insurance can be used to provide liquidity to the estate, ensuring that the parent’s wishes for the distribution of their assets can be met without having to liquidate other assets that were intended for beneficiaries.
3. Long-term care: As we age, the likelihood of needing long-term care increases. A life insurance policy can provide the funds needed to pay for long-term care expenses, which can be a significant financial burden on the family.
4. Legacy: Life insurance can also be used to leave a legacy for your aging parent’s beneficiaries, providing them with the financial resources they need to pursue their own goals and dreams.
5. Peace of mind: Knowing that your aging parent has a life insurance policy in place can give both you and them peace of mind, knowing that their loved ones will be taken care of in the event of their passing.

Understanding why a parent needs a life insurance policy to protect their adult children will go a long way in determining how much insurance is needed, the type of insurance that should be purchased, and in establishing that there is an actual “insurable interest”.

Insurable Interest:

Insurable interest is a legal requirement that must be met when purchasing a life insurance policy. It refers to the financial or emotional stake that an individual has in another person’s life, and ensures that a life insurance policy is not being purchased for speculative or fraudulent purposes.

In order to establish insurable interest, the policyholder must have a relationship with the insured that would result in a financial or emotional loss if the insured were to die. Here are a few examples:

1. Spousal relationship: A husband or wife has an insurable interest in their spouse, as their death would result in a loss of income and emotional support.
2. Parent-child relationship: A parent has an insurable interest in their child, as their death would result in a loss of emotional support and potential loss of income if the child is dependent.
3. Business relationship: A business partner has an insurable interest in the other partner, as their death would result in a loss of income and potentially loss of the business.
4. Mortgagor-Mortgagee relationship: A mortgagee has an insurable interest in the Mortgagor, as the death of the Mortgagor will result in default of mortgage payments
5. Parent-adult child: An adult child would face financial hardship upon the death of a parent in the form of final expense costs, caring for the insured surviving dependents, and any other financial complications.

It’s important to note that an insurable interest must exist at the time the policy is purchased, and can’t be based on a potential future interest, such as a future inheritance. In some states, Insurable interest is not required for certain types of life insurance policies like accidental death and dismemberment policies.

If a life insurance policy is purchased without insurable interest, the policy may be considered void, and the beneficiaries may not be able to collect the death benefit. It’s always best to consult with a financial advisor or insurance agent to ensure that you have an insurable interest when purchasing a life insurance policy.

Consent:

Consent is an important aspect of life insurance, as it ensures that the person being insured is aware of and agrees to the terms of the policy. There are several reasons why consent is required when purchasing a life insurance policy:

1. Privacy: A life insurance policy contains personal information, such as the insured’s age, health, and financial information. By obtaining consent, the insurer ensures that the person being insured is aware of how their personal information will be used and protected.
2. Fairness: Obtaining consent ensures that the person being insured understands the terms of the policy and is aware of the potential risks and benefits of the policy. This helps to ensure that the policy is being purchased fairly and that the person being insured is not being taken advantage of.
3. Legal protection: By obtaining consent, the insurer is able to demonstrate that the person being insured was aware of and agreed to the terms of the policy. This can help to protect the insurer from legal action if there are any disputes about the policy in the future.
4. Ethical considerations: Consent is a fundamental aspect of autonomy and respect for individuals’ rights. It ensures that people are not being enrolled into a policy without their knowledge and without their consent, which would be a violation of their rights.

Obtaining consent can take different forms, depending on the type of policy and the insurer. In some cases, consent may be obtained through a written application, while in other cases, it may be obtained through a verbal agreement or electronic signature.

It is important to note that consent can also be withdrawn at any time by the insured and that the insurer must be notified of such a withdrawal.

Type of life insurance

There are several types of life insurance that a child can purchase on an aging parent, each with their own unique features and benefits. Some of the most common types of life insurance for an aging parent include:

1. Term life insurance: This type of life insurance provides coverage for a specific period of time, such as 10, 20, or 30 years. It is generally the most affordable type of life insurance and is a good option for individuals who need coverage for a specific period of time, such as until the child reaches a certain age or until the parent’s mortgage is paid off.
2. Whole life insurance: This type of life insurance provides coverage for the entirety of the insured’s life, and also includes a savings component that can accumulate cash value over time. It is generally more expensive than term life insurance but can provide lifelong coverage and the potential for cash value accumulation.
3. Guaranteed acceptance life insurance: This type of life insurance is designed for individuals who may have difficulty qualifying for traditional life insurance policies due to age or health conditions. It generally has a lower death benefit, but does not require a medical exam or health questions. One major disadvantage to these types of policies is that they will contain a graded death benefit which will limit when the policy will begin covering natural causes of death.
4. Simplified issue life insurance: Similar to guaranteed acceptance policies, simplified issue policies do not require medical exams but can have more coverage options. They usually require some health questions but the application process is simple and fast. Upon approval, these policies will cover natural causes of death immediately.

Ownership of policy

In life insurance, there are two types of ownership: insured ownership and payor ownership.

1. Insured ownership: In this type of ownership, the policyholder is also the insured person. This means that the person who is paying for the policy is also the person whose life is being insured. The death benefit will be paid to the beneficiaries named in the policy when the insured person dies.
2. Payor ownership: In this type of ownership, the policyholder is not the insured person. Instead, the policyholder is paying for the policy on behalf of someone else, who is the insured person. This can happen in situations where the policyholder wants to provide coverage for someone else, such as a spouse, child, or aging parent. The death benefit will be paid to the beneficiaries named in the policy when the insured person dies.

There are several reasons why someone might choose payor ownership over insured ownership:

1. Gift: A parent may purchase a life insurance policy on a child as a gift to provide them with financial protection.
2. Business: A business owner may purchase a life insurance policy on a key employee as a way to protect the business from the financial loss of that employee.
3. Estate planning: An individual may purchase a life insurance policy on an aging parent as a way to provide for their care and support, and to ensure that their assets are distributed according to their wishes.

It’s important to note that the type of ownership can affect the policy’s tax status and the rights and responsibilities of the policyholder and the insured. It’s always best to consult with a financial advisor or insurance agent to understand the implications of each type of ownership and what best meets your needs.

What if a parent can’t qualify for life insurance?

If an aging parent is unable to qualify for traditional life insurance due to their age or health conditions, there are still options available that can provide coverage. Here are a few alternatives to consider:

1. Guaranteed acceptance life insurance: This type of life insurance does not require a medical exam or health questions and coverage is guaranteed, regardless of the applicant’s health status. However, the death benefit is generally lower and the premiums are higher.
2. Medicaid: If an aging parent has very limited financial means, they may qualify for Medicaid, which is a government-funded program that can help pay for long-term care expenses. Government-assisted burial benefits may also be available in certain areas for those who qualify as well.

It’s important to note that these options may not be available in all states, and the coverage and benefits can vary depending on the insurer and the specific policy

What if a parent doesn’t want a life insurance policy purchased on them?

There may be several reasons why an aging parent may object to having a life insurance policy purchased on them. Here are a few common objections and potential rebuttals:

“I don’t need life insurance, I don’t have any dependents.”

Even if you don’t have any dependents, a life insurance policy can help cover final expenses such as funeral costs and outstanding debts, which can help ease the financial burden on your loved ones.

“I can’t afford the premiums.”

While life insurance can be expensive, there are options available that can fit a variety of budgets. Additionally, life insurance can provide financial protection for your loved ones in the event of your unexpected death, which can be invaluable.

“I don’t want my children to think I’m planning to die.”

Purchasing a life insurance policy is not about planning for death, but rather about planning for the unexpected. It’s about ensuring that your loved ones are taken care of in the event of your passing, and can help provide them with financial security and peace of mind.

“I don’t want to go through the hassle of a medical exam or answering health questions.”

There are options available such as guaranteed acceptance life insurance and simplified issue life insurance that do not require a medical exam or health questions. These options can provide coverage without the need for a medical exam.

“I don’t trust the insurance companies”

While there may be concerns about the trustworthiness of insurance companies, it’s important to remember that insurance is a regulated industry and there are protections in place to ensure that policies are honored and that policyholders are treated fairly.

Furthermore, by working with a reputable insurance agent or financial advisor, you can find a policy and a company that you can trust.

It’s important to remember that purchasing a life insurance policy is a personal decision and that everyone’s situation is different. It’s always best to have an open and honest conversation with your aging parent about their concerns and to consider their wishes and needs before making a decision about purchasing a life insurance policy on them.

It can be complicated

As you can see, purchasing life insurance on a parent is an important decision that requires careful consideration and planning. It is essential to assess your parents’ needs, shop around for the right policy, and obtain consent from your parents before purchasing the policy.  It’s important to remember that the process should be handled with empathy, understanding, and respect for your parents’ autonomy and agency.

By taking the time to research and understand the process, you can provide your parents with the protection they need, and give yourself peace of mind knowing that they are protected. Keep in mind that this is a sensitive topic, approach it with care and empathy, and always remember that things change over time.

So if your parent isn’t ready to purchase a life insurance policy on him or herself today, that doesn’t mean they won’t be ready sometime in the future. 

Frequently asked questions about buying a life insurance policy on a parent.

What is the process of buying a life insurance policy on a parent?

The process of buying a life insurance policy on a parent typically involves assessing your parents’ needs, shopping around for the right policy, gathering the necessary information and documents, and obtaining consent from your parents before purchasing the policy.

It’s important to consult with an insurance professional or attorney to ensure you are in compliance with the laws of your state.

What type of life insurance policy should I buy for my parent?

There are several types of life insurance policies available, such as term life insurance, whole life insurance, and universal life insurance. The type of policy that is best for your parent will depend on their specific needs and circumstances. It’s important to consult with an insurance professional to determine the best policy for your parent.

How much coverage should I buy for my parent?

The amount of coverage you should buy for your parent will depend on their specific needs and circumstances. It’s important to consider factors such as outstanding debts, future expenses, and the cost of living. It’s important to consult with an insurance professional to determine the appropriate amount of coverage for your parent.

How do I know if my parent is eligible for life insurance?

Eligibility for life insurance depends on a variety of factors, such as age, health, and lifestyle. It’s important to consult with an insurance professional to determine if your parent is eligible for life insurance.

Can I buy life insurance on my parent without their consent?

No, it is not legal to buy life insurance on a person without their consent. It’s important to obtain consent from your parent before purchasing a life insurance policy on them.

Is it expensive to buy life insurance on a parent?

The cost of life insurance for a parent can vary depending on factors such as their age, health, and the type of policy. It’s important to shop around and compare policies to find the most affordable option.

How do I ensure that my parent’s policy will pay out in case of their death?

It’s important to make sure that the policy is in force, and that all premium payments are up-to-date and that the policy has not lapsed. Additionally, you should also ensure that the policy is underwritten properly, and that all the information provided during the underwriting process is accurate