I want to get life insurance for my parents. Can I?
Generally, the process for insuring the life of a person other than yourself is the same whether it’s your mother, your father, a family member or even, in some cases, a business partner.
The basic test of whether an insurance company will let you take out a policy on another person is called “insurable interest.” It means that the death of the person being insured would cause financial hardship for you as the person taking out the policy. For example, let’s say you co-signed a loan for your elderly mother and would be responsible for it if she passed away before she could finish paying it off. That would give you insurable interest, because having to pay off that loan would be a burden on you financially. In fact, any of your parents’ financial obligations that would become yours may qualify as insurable interest. Insurable interest also applies if you depend on your parents financially. If losing their financial support would make it difficult for you to get along, you have an insurable interest in their lives.
Why do insurance companies insist upon insurable interest? It prevents people with bad motives from taking out a policy on someone simply to profit from that person’s death. Proving insurable interest isn’t just an insurance company requirement. It’s the law.
Appropriate policy amount
After insurable interest, the next thing insurance companies take into account is the amount of the policy. There’s no single correct number here. An insurance company might reject an application for a policy worth $75,000 but accept an application for a policy worth $175,000. What matters is that the amount of money you stand to receive by insuring another person (in this case your parent) is reasonably close to the amount you would have to come up with if that person dies. For example, if your only insurable interest in your mother is a loan you cosigned for her, and that loan is for $20,000, an insurance company might not approve your application for $100,000 worth of coverage, since it’s so much more than you might owe. The principle here is that insurance is intended to prevent a loss, not make a big profit.
If you have insurable interest and you have decided on a reasonable policy amount, the final step is to get consent. You need to have permission from your parent to take out a policy on her or him. That means talking it over in advance and explaining the benefits of the policy. (If you need help with that possibly sensitive discussion, consider reading How to discuss needing life insurance.) If your parent agrees, it’s time to fill out the application. Ideally, your mother or father should do it. You can fill it out for them, but keep in mind that they might have to share potentially private medical information with you. And no matter who fills out the application, the person whose life is being insured must sign it.
What kind of life insurance should you get for parents?
In deciding what kind of policy is best for insuring your parents you’ll want to consider several factors, including the duration of the financial obligation you want to cover. Let’s say your parents are in their 60s and plan on repaying a debt over the next five years. You may not need (or want to pay for) a policy that spans the rest of their lives. A relatively short “term” policy might be enough. However, keep in mind that most term policies end at age 80 or 85—so if your parent is fortunate enough live past 85, that policy would no longer pay out at death. If you want to be certain your policy will pay for a burial or other final expenses, a “whole life” or “final expense” policy might be in order.
Is it possible to get life insurance for elderly parents?
If your parent is elderly or has a significant health issue, it may be impossible to get a traditional term or whole life policy. However, some companies offer a “guaranteed whole life insurance” policy that won’t turn people down for health reasons. Your parent would be covered, usually at a somewhat higher premium, for life.
“Where can I get life insurance for my parents?”
Most insurance companies will allow you to buy life insurance for your parents assuming you meet the requirement discussed above. TruStage is one of them.
Buying life insurance for a parent could be a smart move, helping you and them get peace of mind. But before you take out a policy, make sure you understand the legal, financial and tax implications. Consult a financial advisor if you can.