Can you buy life insurance for your parents?

Ratehub.ca
by Ratehub.ca November 11, 2019 / No Comments

Life insurance is all about looking after your family and dependents when you die, and being a parent is one of the most commons reasons someone will take out a life insurance policy. But what if you are the child? Can you buy life insurance for your parents?

Can you buy life insurance for your parents?

The short answer is yes, you can buy life insurance for your parents, under a few conditions. Basically, you need to be in a position to experience some sort of financial loss if they were to die, and you need their permission. As long as you have those, you should be able to take out a policy – assuming they’re insurable!

Let’s get into a little more detail about the process of buying life insurance for your parents.

What is insurable interest?

In order to take out a life insurance policy on someone else, you need what’s called ‘insurable interest’. Essentially, this requires you to expect to suffer a financial loss if that person dies. If you stand to gain from their loss, it may lead to you committing a heinous act out of greed. You automatically have insurable interest in your own life, and for the lives of your spouse, children, grandchildren, employees, and business partners. You may also have insurable interest in the lives of your parents, but it’s not a guarantee.

Depending on the circumstances, you may need to prove this interest to the insurance company before you take out the policy.

Do I need permission to insure my parents?

You can’t apply for life insurance on your parents without their consent, as there’s an underwriting process that requires them to answer medical questions. There may be a medical exam, which may include blood pressure, weight, and height checks. If they don’t consent to these measures, you’re not going to be able to take out a life insurance policy.

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Why would you buy life insurance for you parents?

The reasons you would buy life insurance for your parents are the same reasons that they would buy life insurance for themselves. Life insurance is there to pay for the costs of death, tax and funerals for example, to cover outstanding debts like a mortgage, and to support dependents who relied on your income.

You can learn more about the kind of things you would typically want to cover with a life insurance policy in our article: How much life insurance do I need?

There are plenty of reasons why you might need to take out a policy, rather than your parents taking out their own. Your parent’s cash flow might not be able to handle the premiums, or they may not see a need where you do. There may also be other unique circumstances that result in additional costs for you if your parents were to die – if you were involved in a family business, for example.

It doesn’t matter if your parents are rich or poor, taking out a life insurance policy for them may be very beneficial. Here are some examples:

  • If your parents have a small estate: Costs such as the funeral may be cheaper to prefund with insurance. There’s also less stress on the family at an emotional time.
  • If your parents have a large estate: The more that goes to taxes and other expenses, the less that remains for their beneficiaries and their causes. Funding the projected costs with life insurance is often a cheaper way to pay.

What kind of life insurance should you buy?

We can’t tell you exactly which type of life insurance you should buy for your parents, because every family is different. Both term life insurance or permanent life insurance policies could be available, depending on your parent’s age and health. Alternatively, a guaranteed life insurance policy might be a good option for older parents – this will cover the costs of a funeral, and perhaps allow you to take some time off work.

You may also want to consider additional health, terminal illness, or disability coverage, which is generally available as a rider on many permanent policies.

Consider what would happen if one of your parents needed long-term care for Alzheimer’s – how would the costs be covered? Maybe your parents will pay from their savings or a home equity line of credit. If you need to take unpaid time away from work to help care for one of them, you’ll also face financial costs. Purchasing a life insurance policy that offers additional and pre-death payouts can make life easier here.

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Who much does it cost to insure your parents?

Can you afford to pay the premiums for your parents? They’re older than you, which means their premiums for new coverage will be higher. If you have siblings, having them assist in paying the premiums might be an option.

If your parents have current life insurance coverage, it’s often more practical to maintain it instead, especially if their health has deteriorated. This could include converting their term life insurance to permanent coverage without additional underwriting, if their ages allow. You can generally become the policy holder in these situations without too much hassle.

If you have or are getting life insurance for yourself, you might be able to add riders to insure your parents, too. Compared with buying additional insurance policies, this saves money but reduces flexibility.

Who are the beneficiaries?

The policy owner selects the beneficiaries for the life insurance death benefit. If you have siblings, your parents may want all children to receive a portion. An irrevocable beneficiary can’t be changed or removed without the beneficiary’s permission. Your parents may prefer this option.

How to get life insurance on your parents

If you’re ready to take life insurance out on your parents, the process starts the same way as buying life insurance for yourself. Start by comparing life insurance quotes, using your parent’s details. Once you’ve seen a few quotes, or even spoken to a broker, you’ll have a better idea of how much a policy will cost.

Next – or even before you compare quotes – speak to your parents. You need to get their permission before you can take out a life insurance policy, and they’ll need to participate in the underwriting process. Once you’ve got their sign-off, you can progress with purchasing the policy.

The bottom line

If you’re asking the question of whether you can buy insurance for your parents, you first need to consider why your parents aren’t buying life insurance themselves. It could be a tricky issue, but it’s worth speaking to them and trying to help them understand the reasons they need coverage. Sending them links to other life insurance articles might also help them understand your concerns.

Since death isn’t a topic everyone likes to talk about, it’s easy to procrastinate until it’s too late. At the very least, consider buying life insurance yourself, in order to learn about the process, and lead by example.

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