You may want to purchase a life insurance policy covering your parents and naming you as the beneficiary if you expect a significant financial impact from their death. Insuring a parent’s life can pay for burial costs, fund an inheritance, support a charity, cover children’s school fees, and even support a surviving parent after a parent’s death. However, the parents must consent to you or anyone else buying life insurance on them. And you also have to prove how you will lose financially when they die. Talk to a Financial Advisor who may be able to help with insurance decisions like this.
Can you buy life insurance on a relative?
More life insurance policies cover the lives of policyholders who have purchased the coverage and designate a spouse or other relative as Beneficiary. Buying a policy that covers someone else’s life is more complicated and even impossible unless certain conditions are met.
One of these conditions is that the purchaser of the policy must obtain the written consent of the person or persons insured. The policy buyer must also prove that he or she would be financially affected in some way by the death of the insured. However, there are situations where the insurance is taken out on the life of someone other than the policyholder. Insurance covering a relative is one of the most common examples.
The pros and cons of getting life insurance on a relative
Purchasing life insurance for a relative can provide significant benefits. However, there are also downsides to doing this. Here are the pros and cons of getting life insurance coverage for a relative:
The advantages include that the insurance benefit can:
Pay burial costs
Provide a legacy
Donate to a favorite charity
Pay for a child’s or grandchild’s college
Financially support a surviving relative after their death
A specific advantage of buying a policy on a parent, as opposed to the parent taking a policy on themselves, is that the policy owner and only the policy owner can name or change beneficiaries.
The disadvantages of insuring the life of a parent include:
The insured person must sign a consent form and cooperate with the underwriting process, including passing a medical examination.
The purchaser of the policy must prove an insurable interest, which means that he would bear the financial impact of the death.
Without consent and without proof of insured interest, the policy will be refused.
As with all insurance, the policyholder must continue to pay premiums to maintain coverage.
The parent must be legally capable of signing the consent form.
The health of the parent can also be a limiting factor. If the parent is not in good health, the insurance company may refuse to provide coverage or limit the death benefit to an amount that is too small to help much.
How to determine if insuring a parent’s life is the right choice
Here are a few cases where it may be beneficial to purchase life insurance for a relative:
When the parent lacks the financial resources to pay for their own funeral.
When the parent can ensure the end of life medical fees that they can’t pay.
When you inherit financial obligations, such as a house with a mortgage.
If you are a loan co-signer with your parent.
If you expect to be responsible for the support costs of a survivor relative.
In the absence of at least one of these situations or of another source of financial impact of a parent’s death, it’s probably not worth trying to get coverage on the parent’s life.
Even if these circumstances exist, purchasing a policy on your parents’ life may not be the best approach. An alternative is to ask the parent to purchase a policy and name you as the beneficiary. You can pay the premiums if the parent does not have the financial resources to do so and receive payment upon the parent’s death. This avoids having to obtain consent and prove an insurable interest.
What type of life insurance policy is best for insuring a relative?
When considering insuring a relative, there are three insurance options that might be right for you. Here are the three you should consider:
Term insurance is probably the best type of insurance for a parent to get. It is one of the cheapest life insurance policies and its features make it well suited for this type of risk management.
Final expense or burial cover is another option. This type of policy can pay for medical expenses and funeral expenses. However, it is expensive.
All the life is another popular variety of life insurance. It has a number of features that are not necessarily useful for managing the financial impacts of a relative’s death. And it’s usually much more expensive than term life.
Manage the cost of a parent’s insurance
To keep the cost of insuring a parent manageable, consider the financial impact of the parent’s death and limit the benefit amount to the expected duration of the impact. Paying for more coverage than necessary will increase the premium.
Also opt for term life insurance. Premiums for a term policy will likely be lower than for other types of coverage. Finally, start shopping for a font as soon as you know you’ll need it. Generally, the younger and healthier your parent, the lower the premium will be.
You can buy life insurance for your relative if you get their consent and can prove that you would suffer financial loss if they died. Parental life insurance can be a good idea if you anticipate having to pay burial costs or medical expenses after the death of your parents or if you have co-signed loans or simply want to provide an inheritance. If you decide to get a policy on a relative, you’ll probably want to use term insurance instead of one of the other types of policies.
Estate Planning Tips
A financial advisor is well equipped to help you make decisions about using insurance to manage financial risk. SmartAsset’s free tool connects you with up to three approved financial advisors who serve your area, and you can interview your advisor for free to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goals, start now.
You can get an idea of what a $250,000 term life insurance policy would cost for a healthy non-smoker of various ages from SmartAsset’s Term Life Insurance Quotes Resource. This helpful tool suggests a range of premium levels for male and female policyholders and can quickly put you in touch with insurance companies for real quotes.
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