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When dad passed away, he had a simple ” I love you Will.” So he passed everything he owned to mom – including his debt. There was a small mortgage, BIG medical bills, a lease on both cars and a home equity loan for the addition they built 7 years ago.
Now that dad was gone, mom felt the house was too big for just her so she sold the house and paid off the remaining mortgage. She paid all the debts dad left behind and put the rest of the money in a savings account.
At age 75, mom moved into her new home and took out a 30 year mortgage. When she passed away 8 years later, she left everything to her 2 children – including her debt. When her estate was settled, the kids realized the meager savings and retirement accounts mom had were not enough to pay off mom’s remaining debts.
Her children were now responsible for mom’s medical bills, mortgage, funeral expenses and more. If the kids would have purchased life insurance for their parents, much of this tragedy could have been avoided.
Just a few years ago, the conventional wisdom about life insurance was that it was mostly for the short term. In other words, insurance was only needed to cover the mortgage and living expenses for working couples in their 40’s and 50’s while they were raising their children.
But, times have changed and people are discovering that the best made plans do not always work out as planned. Sometimes the need for life insurance never goes away.
Why Purchasing Life Insurance On Your Parents Make Sense
According to statistics from The Department of Labor, 50% of American households are running a deficit – Spending more than they earn. One out of three people have $0 saved for retirement. Of those who have been able to put money away for retirement, they have roughly on average $172,000 in their savings account.
To some, that amount might seem pretty decent but when you consider these funds need to last through a potentially lengthy retirement, you discover that isn’t much money at all.
So many children who have aging parents are realizing that there is a need for their parents to have life insurance to pay final expenses and cover any debt that their parents might still have when they pass away.
Considering that the average cost of a funeral and burial expenses can cost in excess of $10,000, a life insurance policy can be very helpful to make certain these expenses are paid for and give your parents a respectable farewell.
In addition, there are often many parents who have unpaid loans or other debts that your parent could leave behind which you could be responsible for. Believe it or not, many seniors still have mortgage obligations on their homes, as well as auto loans on their cars.
Will you be able to pay for these expenses when your parents pass away? The proceeds from a mortgage life insurance policy could help pay this off these debts quickly and make sure that your parents assets are actually left to their heirs.
How Children Can Buy Life Insurance On Elderly Parents
(Quick Tip: Use choose “Regular” health class on the quote form to view rates from our top insurance companies that specialize in insurance for the elderly).
When purchasing a life insurance on another individual – in this case, your parent or parents – you will need to prove to the insurance company that you have insurable interest. This means that you will incur a financial loss or financial responsibility in the event of the insured’s death.
Since it’s possible you would be financially responsible for the payment of final expenses and your parent’s estate could be responsible for any outstanding medical bills or debt obligations, you can easily establish insurable interest for your parents and your financial well being.
3 Tips for Setting Up A Policy The Right Way
Now that you have established insurable interest you want to make sure you set up the policy the right way. Getting this step wrong can cost you big time!
Tip # 1: First of all, never name a Will as the beneficiary of a life insurance policy. Many attorneys are not educated on insurance planning and will advise people to add “as per Will” to the insurance policy.
This is a perfect way to screw up the insurance proceeds and have them sit in probate for a year. The insurance policy beneficiary page trumps any Will and whoever is named on the beneficiary page (hopefully a person), will receive the proceeds.
Tip # 2: You can purchase the insurance policy on your parent or parents and even pay for the premium on their behalf. Your parents will each have one policy and they will be the insured and the owner.
Tip # 3: You as the son or daughter (or both) will be the beneficiary of the policy. This means that when your parents pass away, you will receive the insurance proceeds income tax free, but not estate tax free.
Please note: (If your parent’s estate is worth over 5.2 million dollars, then estate planning could come into play here. This post is not about estate planning because it can be a complicated topic and I will go into it in another article).
Will Your Parents Qualify For Coverage?
Prior to purchasing a policy, you will also need to decide how much coverage is appropriate to cover your financial needs. The face amount – or amount of the policy’s death benefit – can be determined by adding up the amount of final expenses and debt that will be needed to be paid off.
Once you determine the face amount, you will need to find out if your parents are healthy enough to qualify for an insurance policy. As we age, our medical needs increase and sometimes if there are serious health issues, it could be very difficult to qualify for a policy.
The insurance company will want to conduct a full background medical check on your parents. This means they will request doctor records, prescription history and even lifestyle habits. Placing insurance on an elderly parent with previous medical conditions such as cancer, heart disease or diabetes could be quite challenging and sometime disappointing if the policy is denied.
What Type of Policy Should You Buy?
Most likely, term insurance will be the best choice because it will be the most affordable. Depending on the age of your parents, you could purchase a 10, 15, 20 or 25 year term insurance policy. Your parents would be covered for the length of the term but if they outlive the term, the coverage ends.
Some policies will allow you to renew the term without further medical requirements but this comes at a much higher cost. For instance, a 10 year term life policy might have level guaranteed premiums of 10 years but after the 10th year, the policy can be renewed at a much higher cost – sometimes 5 to 10 times higher than the original premium. Before you consider buying life insurance for you parents, make sure its affordable.
You can get a preliminary quote by entering your parent’s information into the quote engine on this page. While these rates will be accurate from our life insurance companies, consider them as a starting point because other variables such as health, height/weight and previous medical history could make the policy more expensive.
The Bottom Line: Life insurance for parents requires an agent experienced in working these cases. You should not depend on an agent or company that does not have knowledge in this area.
We have the experience to help you obtain an insurance policy on your parents and make sure it is affordable. Please contact us at; 914-633-1717 for more information.
