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You can buy life insurance for a parent as long as you have an insurable interest and consent from the insured. Only if both of these criteria are met will an insurance company accept the application. A small, permanent life insurance plan is typically a good option for a parent.
Before choosing life insurance to provide for end-of-life expenses, you may want to consider other options, such as a savings account or pre-need insurance. Another strategy is for a parent to buy a policy and name you as a beneficiary, if they are capable.
Can you buy life insurance for a parent?
An insurer will allow you to purchase life insurance on your parent as long as two criteria are met: You, the policy owner, must have consent and insurable interest in your parent.
There are a few key life insurance terms you'll need to know. You're considered to have an insurable interest in your parent's life if you would suffer financially by their death. Children often have an insurable interest in their parents, however, depending on the size of the life insurance policy you want to purchase, you may need to prove your insurable interest.
The named insured is the person that will be insured under the life insurance policy — in this case, your parents. The policy owner is the person who will pay for and own the policy.
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Why would I buy life insurance for a parent?
Buying life insurance for a parent can provide financial protection in case of unpaid expenses after the parent passes away. Such final expenses can include:
- Funeral expenses: Typical funeral costs can range from $6,000 to $12,000. This can be a large financial burden on the family of the parent if they need to pay for the funeral out-of-pocket.
- Financial debts: Credit card debt or outstanding loans might need to be paid after a parent passes away. Family members may be left with these unexpected bills.
- Medical bills: Doctor and hospital bills can be extremely high for people who pass away while undergoing treatment.
- Moving a surviving parent: When one parent passes, the adult children often need to move the other parent in order to care for him or her. Long-distance moving expenses can be very costly.
How to buy life insurance on a parent
If you are thinking about buying life insurance for your parent, begin by having a conversation. Share your financial reasoning and get consent for you being the owner on a life insurance policy. Understanding their needs, and what they already have covered, will help you decide if buying life insurance for your parents is appropriate.
Once you have your parent's consent to purchase the life insurance, you can begin getting quotes. The policy that you buy will depend on how much coverage you need, the reason for the financial obligation and the age of your parents, since this will impact the types of policies available.
For minor financial needs, final expenses insurance is often the best option for older individuals and elderly parents. These are guaranteed whole life plans usually have death benefits that are less than $50,000 and will last for the entirety of the parent's lifetime. They do not require a medical exam.
For greater coverage, such as life insurance protection for a mortgage, a robust term life insurance policy would make more sense.
After you have selected a life insurance policy, you need to choose a beneficiary and show insurable interest by proving that you would experience financial hardship due to the passing of a parent. If approved, you then begin to pay premiums on the life insurance.
Best life insurance for a parent
The best life insurance to buy for your parents depends on their health, age and your financial situation. Generally, a guaranteed universal life insurance policy is a great policy for many, especially for a parent who needs lifelong coverage or is uncertain about whether they want term or permanent life insurance.
This form of permanent life insurance has a cash value account that is guaranteed not to go below zero. This feature avoids the possibility of the cash value account going negative, which could cause a permanent life insurance policy to be voided or cancelled.
If your parents are relatively young, term life insurance is another good option that may save you money. Term policies are cheaper than permanent policies like guaranteed universal.
Other options besides life insurance
Another strategy, besides life insurance, is to open a savings account for your parents. You could begin to put money aside for end-of-life expenses, which could also be used by you and their dependents once they have passed.
Finally, if you are only worried about funeral costs, you could purchase a pre-need insurance policy. This type of plan lets you prepay for a funeral through the funeral home, making payments easy. However, we don't generally recommend these policies. They provide no flexibility, since the entire death benefit covers only funeral costs.