Buying Life Insurance For Parents: What You Need To Know

Kimberly MaturinoFrontpage Article, News

If someone close to you has met with an accident, is facing terminal illness, or if there has been a sudden death in your family, it can be life-altering for you and your loved ones.

If you depend on these individuals you may need to consider purchasing life insurance ahead of time.

You should ask yourself a few questions

•    What would I do if something happened to my parents?

•    Would you be able to make ends meet if your parents died?

•    Where would it leave you financially?

Life insurance is essential, especially for families with dependents.

If you are wondering whether buying life insurance for your parents is a good idea, consider how it could help your specific situation. 

Life insurance is valuable, but it isn’t necessarily the best choice for everyone. Review why you would need the protection, and then determine if it is the best available choice.

There are two main reasons for buying life insurance for parents:

  • You have financial dependence on your parents. While it may not be easy, consider what happens if your parents die. Could you afford to cover all of your living expenses without them? If you are challenged financially and cannot sustain your current state of living if your parents passed away, then it makes sense for you to buy whole life insurance coverage for your parents.
  • You may also have expenses that need to be covered if your parents die, including credit cards or loans, a joint business venture with your parents or in case they owe anything to investors. Plus, don’t forget there could be medical expenses and funeral costs if your parents die suddenly.

If any of these situations apply to you, you should consider life insurance for your parents.

Before you decide on life insurance types, here are some other details you should consider:

Understand Your Goal of Life Insurance Coverage

Buying life insurance is a significant commitment, so you need to choose the right insurance policy. To that end, you need to evaluate your specific goals.

 There are two main kinds of life insurance.

•    Permanent life insurance – Just as implied by the name, this coverage will last throughout the lifetime of the individual. The policy is to cover final expenses, including medical bills, estate expenses, and funeral costs.

•    Term insurance – This is a less expensive alternative, but coverage only lasts for the contract term, which is anywhere between 20 to 30 years. This coverage also takes care of temporary expenses, such as a mortgage, car loan, business loan, as well as provide temporary income replacement for basic living expenses.

Carefully consider your situation to determine which expenses must be covered if your parents die. Based on that information, you can decide the type of life insurance you should buy for your parents.

Make Sure The Life Insurance Policy Owner And Beneficiary Are The Same Person

Life insurance policies can become taxable gifts because life insurance has three main aspects – the insured, the owner, and the beneficiary. As an example, if the person insured is your father, you are the owner, but your brother is listed as the beneficiary, it might be considered a taxable gift to your brother per IRS guidelines. Unless it is necessary to have separate people as the owner and the beneficiary, you can avoid additional taxes by having the same person as both beneficiary and owner.

Independent Insurance Agents Can Be Of Great Help

Agents who work for a specific insurance company could be biased, and that might not help your cause. You want to select the best insurance coverage based on the policy owner’s ability to pay for the coverage, as well as the expected coverage amount. Independent agents work with multiple insurance companies, so you can rest assured they know about the different policies, and can recommend you a policy that best suits you.

Collect Information About Your Parents’ Health

The health of an individual who is insured plays a significant role in the coverage and the costs of the policy. Their medical history will determine if they are eligible to purchase a life insurance policy, the cost of premiums, and the available coverage. Without having your parents’ health history, finding the right insurance coverage would be challenging.

Obtain Consent From Your Parents

Some people believe they can get through the process and buy an insurance policy without their parents’ consent, but that isn’t true. You must have your parents’ consent to apply for life insurance in their names. Specifically, you must have their signature in some form or another.

You could use a voice signature, which is a recorded verbal agreement that says they permit you to apply for life insurance on their behalf. Another option is email signature, where some companies send the policy to the insured and the owner via email, and your parents permit you to apply for the coverage on their behalf via email.

Do Your Research So You Are Prepared

Before you apply for life insurance for your parents, do extensive research and be prepared so you can make the best choice. You want to do your research about life insurance coverage, the different insurers, and the policy options.

You need to ask questions, so you can gather the information you need before you ask for quotes online. You should consider rates by age of different companies before zeroing in on one that meets your need.

Remember, a successful policyholder must remain updated at all times.

 When you follow these steps, you are more likely to have your application for life insurance approved.