The number of young adults above 45 who take care of their elderly parents have increased in the past decade. Hence the need of buying life insurance for parents has also increased quite considerably. It is a big responsibility on your part, and when you are looking to buy a life insurance policy for your father, mother or both you need to be well informed about all the right life insurance plans which might be suitable. Now before we move any further, I wrote a post on buying life insurance for people over 60. I advise that you go through this first. Most parents as retirees depend on their retirement income and social security to take care of their day to day living expenses but this income in many cases is not sufficient to cover your final expenses or daily living cost. This is the point when a life insurance policy for your elderly parents can come in handy.
What Type Of Life Insurance Is Best For Your Parents
If you have done the slightest bit of research on life insurance, then by know you should know that there are two types of life insurance policies. A term plan and the other one is permanent life insurance. If you would like to know the difference between these two then. Knowing the difference is not enough as how would you determine which plan will be the best for your parents? Just to give you a basic idea. A term life insurance policy will pay a lump sum amount when the policy holder dies within the period set in the terms and conditions of the plan. Whereas in a permanent (whole) life insurance plan you get the money which the policy has earned (cash value) till the time of death of the insured. It can be quite depressing thinking about your parents not being with you anymore but this is something which you need to keep into account to get the best coverage option.
Generally, term insurance plans are good to suffice temporary needs. Such policies act as a cover to pay for your kid’s college fees and pay for your mortgage. Once these two needs are met and you no longer feel financially responsible, you can cancel your term plan. So this is not what is required when looking at a policy which will pay for your parent’s medical expenses, funeral costs and any other expenses which may arise at the time of need. If your parents are quite old then buying a term plan would make sense if the set period is way above their life expectancies.
A permanent life insurance includes many specifically designed products which include whole life insurance, universal life insurance , guaranteed acceptance life insurance for seniors and final expense insurance. In fact, now days a senior life insurance policy is also serving another useful purpose of paying for long term care as well. I have covered this aspect of converting your parent’s life insurance policy into a long term care benefit plan in this article.
Things To Keep In Mind Before Buying Life Insurance For Parents
Insurable Interest: A senior life insurance plan is bought keeping in mind specific needs which may arise due to your parent’s old age. When you venture out in the market to buy life insurance for your parents you will have to display “insurable interest” to the insurance company. Now, what does that mean? Put in simple words, it means that you will suffer some kind of financial loss if your parent (insured) passed away. It re-iterates the basic principle of insurance. You cannot insure something which does not have any negative financial impact when it is gone. It also keeps the principle of good faith alive and keeps people away from using life insurance on seniors as a tool to make some money. Quite a morbid thought, isn’t it?
Coverage Amount: How much coverage you need for your parents? This again would depend on being able to judge the foreseeable future expenses. If you primary objective is just to cover the cost of funeral and cremation then a policy with a face value of $10,000 to $15,000 would be enough. On the other hand, if you are looking at major medical expenses due to ill health of your parents then a larger policy in terms of face value would be ideal. Few other aspects which would determine your coverage amount is current debt if any, available assets and retirement income.
Cost: Depending on what type of policy you choose, your parents age and the coverage amount, the cost will vary. Term life insurance is cheaper than whole life. If your father is 60 years old then a $500,000 coverage will cost your around $3,000 annually. This is for a 20 year term life insurance policy. If you wish to choose a whole life insurance plan then you will pay higher premiums. Reason being, some portion of your premium will go into the investment portion of your policy known as cash value.
Underwriting: When you by a life insurance policy for your parents, you most probably will name yourself as the beneficiary however, your parents need to be a part of the underwriting process. If you rely on your parent’s income then buying a term life insurance would be a better option and if you just need a policy to cover your parent’s final expenses then whole life insurance is better.