If you want to thank your parents for taking care of you and support them in their golden years, you can buy life insurance for them! A life insurance policy is the best way to earmark money specifically for their care or related costs.
In today’s article, we will cover the following:
- Reasons why you should purchase your parents life insurance
- A step-by-step guide to buying life insurance for your parents
- What is the best life insurance policy?
- Is there anything else you could do with the policy?
Let’s get started!
Why Should You Get Life Insurance for Parents?
The basic idea of life insurance is to provide a financial cushion to support the closest family and friends to cover final expenses. But, besides buying life insurance for yourself, in some cases is essential to purchase coverage for someone else.
Even if you, as an adult child, can buy life insurance for your parents, you still have to meet certain requirements, and it’s usually not possible without their knowledge or consent. Often your parents may need to undergo a medical exam. As with shopping for your own life insurance, you’ll have more options and a less expensive premium if you purchase the policy when the parent you’re insuring is younger and healthier.
Similarly to regular life insurance, when the insured person dies, the lump sum of cash from the policy can be spent on whatever you like. People usually choose to purchase life insurance for parents because of the following reasons:
Medical Care
According to some research, an average 75-year-old spends about $7,000 on medical expenses every year. For a significant illness, that sum is even more enormous.
With permanent life insurance policies, like whole life, you have a cash component in the policy that allows you to access money while the insured person is still alive. So, thanks to the cash component, you can use that money to cover any medical expenses that come up.
Living benefits are one of many advantages of the whole life policy for parents, as well as lifelong coverage and the opportunity to earn dividends.
Another significant expense is caregiving. As our parents age, it is harder to live on their own. You either welcome them to live with you or pay for residential care when it happens.
Some people even take time off work to care for a parent who needs help. In each case, you can meet some financial difficulties. But, with a life insurance policy, you will have a tool to help you cover these expenses.
Funeral Costs
Funeral services are more expensive than ever before and will continue to increase. The average amount for funeral expenses starts at about $9,000.
It certainly is a significant amount to pay, and that’s why you need to talk to your parents about their end-of-life wishes and make a plan according to their wishes. Life insurance proceeds can help pay some (or all) of these expenses, especially if the policy’s death benefit is received quickly.
Repaying Their Debts
No one wants to leave their unpaid debts when they pass away, but sometimes it happens. We know life is unpredictable, and having a life insurance policy can be the only way to cover any debts and help you not to struggle financially.
Boosting Retirement Income
Due to inflation and overall price increase, it’s tough to cover all monthly expenses. This is incredibly challenging if you have one parent with one pension. So, the life insurance policy could replace some (or all) of the pension benefits and help cover everyday life expenses.
So, every one of us has at least one reason, if not all, to get life insurance for our parents. It’s a normal human cycle that we age and have more needs for medical care and, eventually, funeral or related costs.
Therefore, much more crucial questions are: How to buy life insurance for parents and What is the best life insurance policy? Keep reading to find out!
Step-by-Step Guide to Buy Life Insurance for Parents
We made the steps you should follow if you want to buy life insurance for parents and protect yourself from experiencing a financial burden.
Determine How Much Life Insurance Coverage They Need
As we mentioned, the average amount for funeral expenses is around $9,000, but often, even more, depending on the style of service. So, you must talk to your parents about their wishes and research how much that costs to be able to select a plan and the coverage amount.
Depending on your reasons for getting a life insurance policy, you must consider any debt or other end-of-life expenses like unpaid medical bills to determine how much coverage your parents need. After calculating every future cost, you should know how much life insurance to purchase.
Find The Right Insurance Policy
There are many different types of life insurance policies, and they vary in monthly price, features, and application process. This article will cover what our experience has shown to be the best policy, but you can read more about other options.
Determine Who Will Own and Pay for the Policy
For most policies, you will need your parent’s signature and consent to buy a policy for them. Depending on your situation, you may choose to be the policy owner because your parent isn’t suitable for a medical exam or any other reason. So, before buying life insurance, you have to talk to your parents about their wishes, and you need to research different options.
If you want to buy life insurance for someone else, you must be able to prove “insurable interest.” By insurable interest, life insurance companies think of people with more to lose than gain after the person’s death.
Since the people must be able to show that they suffer financially if the insured parent dies. So, family members have a genuine insurable interest. And therefore, children generally have insurable interests and have no problem proving it.
Depending on policy type, some companies will require the insured to take a medical exam to qualify for insurance or sign an application. If the person suffers from significant health issues, there is life insurance with no medical exam, but they usually have less life coverage and are more expensive.
Your personal financial situation will influence the decision of who is the most suitable to own a life insurance policy. Usually, the person who pays the insurance premiums is also the policy owner.
However, some policies expect a specific person to be the owner. If you’re unsure who to choose to be the owner, consider talking to your insurance agent and getting advice.
More important than who is the policy owner is the accessibility of the policy. The owner needs to understand their responsibility and is willing to be the point of contact with the insurance provider.
Do You Need Parents’ Consent?
In most cases, the answer is yes. We know that it can be really challenging to talk to your parents about taking out a policy for them. Still, this discussion will be helpful in many ways.
Questioning ageing parents about their finances—especially life insurance and final expenses—can feel uncomfortable. But it’s a conversation worth having, as they might need your help preparing for the future.
In addition, your parents will need to be legally competent to provide such consent. You’ll also need to provide their Social Security number, name, and address during the application.
Some people are afraid of death and don’t want to talk about it, so it’s crucial to explain the purpose of that talk. Your parents have to know that you intend to support their wishes and avoid financial difficulties.
In addition, parents have to understand everything about life insurance policy and how it works. Only when they truly understand the necessity of life insurance will they give their consent.
How Much Will Life Insurance for Parents Cost?
The monthly expenses for life insurance depend on several factors. A life insurance company calculates the cost involving the applicant’s age, gender, overall health, and the coverage amount.
You can always consult financial professionals to help you better understand and predict monthly payments. They consider your personal circumstances and estimate how much you will be paying. Talking to a financial professional can be helpful to know whether some policy is for you or not.
Insurance expenses will also vary depending on the type of policy. For instance, term life insurance is more affordable but with fewer opportunities. On the other hand, the whole life is more expensive, but you can use it for living benefits and build a cash value.
What are Life Insurance Policies Options?
The available options will depend firstly on your parents’ age and health. But, suitable options for them will also depend on their wishes and plans for the future.
Term Life Insurance
Term life insurance provides coverage for a certain period, usually between one and 30 years. The term coverage ends when the policy term as well.
People who aim to have an income replacement or want to pay off the mortgage or other specific debts usually choose term life policies. One of the most significant advantages of term life is its affordability.
On the other hand, this might not be the best choice if you or your parents are in their 60s and 70s. With term coverage, you cannot cover hospital bills or funeral expenses and leave wealth for the inheritance like you can with permanent policies.
In addition, term life insurance has a maximum age limit, which is usually the age of 50. That means people who are over 50 cannot choose longer-term policies. And as people age, their premiums are more expensive.
There are many minor differences with term policies depending on the life insurance companies that provide them. Comparing life insurance companies before buying a policy is necessary to get the best possible deal.
Guaranteed Issue Life Insurance
It’s permanent life insurance, meaning the coverage lasts during the policyholder’s entire life. Permanent life insurance lasts for your parent’s whole life, as long as you make the payments on it. It’s more expensive than term life but can provide a guaranteed source of funds to help cover lost wages, medical bills, or funeral expenses.
The crucial benefit of guaranteed issue life insurance is getting a policy without medical underwriting and answering any health questions. So, this life insurance may be the only option for people with health issues who cannot apply for other policies. However, there is an inconvenience with this policy as well.
Guaranteed life insurance has an unavoidable waiting period of two or three years. If the insured person dies during a two-year waiting period, their beneficiaries will not get the full death benefit.
So, for many families, this is an enormous risk. This may be the only option if the parent is in poor health. But, on the other hand, they risk not having a death benefit if they die during a waiting period which is always a chance since their health issues.
If you, or your parents, want to budget for your funeral costs ahead of time, you can buy a life insurance policy specifically for funeral expenses. This type of policy has lower premiums than other life insurance policies, so it can be a good choice if you want affordable coverage for your funeral expenses.
The Best Life Insurance For Your Parents
The best life insurance policy to get is a whole life insurance policy. You will have insurance coverage as long as the premiums are paid and guaranteed level premiums, death benefits, and cash value.
Also, with whole life, you get lifelong coverage, with no unexpected expenses and surprises. Once you get your policy, it remains the same, unlike with some term policies where insurance premiums increase as the insured person ages. Therefore, with whole life you have financial protection for your loved ones and, at the same time, support to build wealth that you can access when and spend it however you need it.
With a whole life policy, you have two places where your premium dollars are directed: death benefit and cash value. The death benefit is fixed and is intended to pay out to your beneficiary when you die.
The cash value portion usually starts to accrue a few years after setting up your policy. Thanks to this component, you can borrow against and withdraw the cash value.
Moreover, whole life insurance can cover goals like leaving an inheritance to charity, helping adult children buy a home, or funding college for grandkids. Then too, whole life insurance can help support your parents in retirement.
When the policyholder passes away, the beneficiary submits any required forms and documentation to receive the death benefit. Usually, any cash value remaining in the policy will be paid additionally to the death benefit. If the policyholder took out a loan and didn’t repay it, any remaining balance owed, plus interest and fees, will be deducted from the death benefit.
Depending on the life insurance company, you will usually be able to surrender your policy and receive a lump sum cash payment. Some policies also pay dividends, which can often be applied to the purchase of additional death benefits. In turn, they raise the payout amount that the beneficiary will receive.
Advantages of Whole Life Insurance
- Tax-free death benefit. Whole life pays benefits when the policyholder dies as long as the policy is still in force, and that amount is always non-taxable.
- Withdrawals that policyholders can access during their lifetime are considered a tax-free return of cost basis.
- Policyholders can take loans against their policy and use them for anything they want. Loans are also considered to be non-taxable events. So, with whole life, there is no tax considerations.
- The cash value helps keep life insurance costs down as you age.
- The Infinite Banking Concept or Overfunded life insurance is the financial strategy that relies on your whole life policy and supports you to become financially independent and wealthy.
Why Is Whole Life the Best Insurance for Your Parents?
Pays funeral expenses. Whole life can ensure that your family and friends don’t have to worry about money for a funeral during mourning. A whole-life policy will help your family in paying every expense that may come up.
Pays off debt or mortgage. Unfortunately, many USA families sell off their assets like homes because they cannot afford the additional cost of a second mortgage. Thus, if the policyholder puts a life insurance policy in place to pay off a mortgage or any other debt, their family will avoid financial problems.
Pays for medical bills. We can avoid financial crises that often happen when the family receives high medical bills after the policyholder dies. Once the insured pass, a whole life insurance payout can help cover these expenses.
Achieve All of Your Financial Goals
Overfunded life insurance is a personal finance strategy that leverages a whole life policy as a ”personal bank.” The best part? Overfunded life insurance works for anybody, even for older parents.
The higher mortality rate of an insured has two antagonistic forces that roughly cancel out as far as overfunded life insurance goes: to achieve a desired death benefit level, an older and/or sicker person will have to pay a higher premium. But, on the other hand, since that person has more chances to die, the cash value of that policy at any moment will be higher than an otherwise comparable policy for a younger and/or person with better health.
We can see it like the life insurance company is willing to pay an older/sicker person more to surrender a policy of a particular death benefit than it would pay to a younger or healthier person to offer a policy of the same death benefit. The cash value will tend to grow faster for the younger or healthier person, but the market value of having a whole life policy in force is correspondingly lower since there is less chance of getting the death benefit.
In addition, we can use a life insurance policy as a cashflow management system – also known as ”becoming your own banker” as Nelson Nash recommends – then the various forces largely cancel out. You can efficiently implement overfunded life insurance with a dividend-paying whole-life policy, regardless of the person insured’s age or health state.
So, you’re not too old to start using overfunded life insurance! In fact, the opposite is true. Overfunded life insurance puts you in control of your money.
It also eliminates the traditional banks and puts you in control. That means you will make the profits the banks would have otherwise.
Another reason that makes overfunded life insurance more attractive for older parents is that they are more likely to die soon. Because they are more likely to die, there’s a probability that the cash flow management tool you use to buy things will now pay off in tax-free death benefits. Here is one practical example.
Suppose Anna is 28, and I’m 56. Let’s say we wanted to buy $50,000 of insurance paid up at age 100. Premiums for Olivia will be much lower than mine, but the amount that the life insurance company has to reserve for every annual that’s paid is going to be better for me than it will be for her. Why? Because they have 72 years to reserve for Anna and only 44 for me.
Author of the bestseller Becoming Your Own Banker, Nelson Nash, was asking the same question – ”Am I too old to start this?” He was 52 years old when he came up with this concept, and his situation was such that he was buried in debt and looking for a solution to the problem he had created for himself with the bank at that time.
He knew that he was paying $400 to the state for a whole-life policy. His cash value was growing by over $800 annually. And then he saw the solution to his problem. Nelson Nash needed to get his premiums as large as his mortgage.
If he did that, he would be in a great position financially. At that point, he started getting as much insurance as possible for himself, his family members, and his friends.
So, owning cash value in those policies was as close as he could get to owning his own bank. Even though life insurance is not an investment, it is a fantastic vehicle that anyone can use to become their own bank.
Thanks to the whole life underlying the overfunded life insurance, you provide liquidity in life insurance, earn stable returns despite the situation in the global economy, and have a safe space to keep your money. Your policy’s cash value continues to grow even when you take a loan to cover whatever expenses you might have.
Now you see why the whole life policy is perfect for parents and anyone really. You can have everything you want and achieve all of your financial goals!
Final Thoughts
Adult children can buy life insurance for parents, with their permission and a specific plan of why they need a policy and what they want to cover. The logic behind searching for parents’ life insurance is the same when looking for our life insurance – we want the best life insurance.
And the most beneficial policy is whole life insurance. We believe that we showed you how it’s possible to buy life insurance for your parents that will help everyone! With a whole life policy and overfunded life insurance, you, your parents, and your inheritance can enjoy financial freedom and fortune.
The best part? However old you or your parents are, you can start today! The most convenient way to start learning more about overfunded life insurance is to watch our free masterclass. You will be ready to create your own bank in just one hour!
