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Should You Buy Life Insurance for Your Parents? Probably Not | #insurance | #seniors | #elderly

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Ideally, your parents have already purchased life insurance as part of their retirement planning.

If they have not, in theory, you could buy a life insurance policy on your parents with their permission. However, some insurers will not allow an adult child to take out insurance on their aging parents, so you’ll want to contact multiple life insurance companies to get their policies and quotes. 

Life insurance is a contract between you and the life insurance company where you pay premiums (monthly or annually) for a payout that your living relatives will receive, known as the death benefit. Should you die, the insurance company pays the death benefit to your chosen beneficiary.

Most people get life insurance to cover the mortgage, education, and other expenses so their family can continue after they die. The goal of having life insurance is to ease the burden on your loved ones after your loss.

There are two types of life insurance: whole (permanent) life and term life. Whole life insurance lasts the rest of your life, but it’s significantly more expensive because in addition to a death benefit, it has a cash value component that you can borrow against during your lifetime.

Term life insurance
covers a set time period only, usually 10 to 30 years. If you die during that period, your beneficiaries get your death benefit. 

Life insurance is usually to cover your own death, but it doesn’t have to be. Spouses typically have life insurance policies on each other. Grandparents can get life insurance for their grandchildren. Business partners may get life insurance on each other to protect the business. And you might be considering getting life insurance on your parents.

To get life insurance for your parents, you need two things: an insurable interest in their lives, and their permission.

What is insurable interest?

If you buy a policy on yourself, you are the owner of the policy and the insured, Mark Williams, CEO of Brokers International, tells Business Insider. But to buy life insurance on someone else — including your parents — you must have what’s called an “insurable interest” in their life, meaning you will suffer if they die. Williams says an insurable interest is what allows business partners to insure each other to protect the business. If you own a family business with your parents, there would be an insurable interest as business partners.

If you are considered to have an insurable interest in your parents such that you can buy life insurance on them, you should talk to their accountant or financial planner about any potential tax implications before you make this purchase. 

Why do you need permission?

In addition to an insurable interest, you need your parents’ permission. Some people do not like to discuss life insurance because it involves confronting mortality. This can be a sensitive topic even if you have a good relationship with your parents. If you do not get your parents’ permission, you cannot buy life insurance on them, even if you have an insurable interest.

Life insurance premiums are cheaper when you are younger and healthier. If you are trying to buy life insurance on your parents, expect higher premiums and lower death benefit coverage amounts. 

It may be better to have your parents apply for a policy that you pay for and request that they make you the beneficiary. (However, the drawback to this system is that your parents can change the beneficiary at any time.)

The underwriting process for traditional life insurance can take four to six weeks. The process collects information about the insured’s health (their medical history), job, and other personal information to determine the premium and coverage amounts. 

You might find that because of their age, any medical conditions, or other factors, no medical exam life insurance is a better fit for your parents. 

No medical exam life insurance

If your parents currently do not have life insurance or have medical conditions that would prevent them from getting traditional life insurance, they may be limited to no medical exam life insurance, known as guaranteed issue or simplified issue policies. 

Simplified and guaranteed issue no medical exam life insurance policies are also referred to as “final expense/funeral insurance” because the coverage amounts are so low that they basically only cover funeral and burial expenses.

Guaranteed issue life insurance has no medical exam and no medical questions, but coverage is limited to up to $25,000. Simplified issue has no medical exam, but you still have to complete a health questionnaire and provide access to medical records. Simplified issue also offers higher coverage amounts up to $100,000 and cheaper premiums than guaranteed issue policies.

Encourage your parents to check out no medical exam life insurance through AARP or the guaranteed life insurance mailers that might arrive in their mailbox from Mutual of Omaha or ColonialPenn. Most of these offers are for low coverage amounts, but some coverage is better than none at all.

If you’re concerned about the cost of caring for your parents in their old age, you might want to look into long-term care insurance — whether your parents have life insurance or not.

What is long-term care insurance?

Long-term care insurance is different from traditional life insurance in that is is considered “end of life” insurance that provides for in-home care, assisted living, or nursing home care while the insured person is alive. Traditional life insurance, on the other hand, is payable upon death.

If you are caring for your parent at-home, in assisted living, or a nursing facility, long-term care insurance will help you defray costs.

How to get long-term care insurance

As with any insurance, in order to insure someone other than yourself, you need an insurable interest and their permission.

However, it may be easier to get your parents’ permission to buy long-term care insurance; most parents don’t want to be a burden on their children, and even if they’re hesitant to agree to life insurance, they might be more open to discussing an option that makes things easier while they’re still alive.

How much long-term care insurance costs

The cost of long-term care insurance has gone up over the years because more people need it, and will vary based on where the applicant lives, their age, their health, and how much coverage they select.

Williams says the national average cost per day for long-term care is $135/day, and the average need is for two years. That means ideally, you’d choose insurance that covers at least $135/day over a two-year period.

If your parents did not purchase and you are purchasing it for them, it will be expensive, because it costs more as you age. According to the American Association for Long-Term Care Insurance, a 55-year-old man can expect to pay $2,050 a year, and a 55-year-old woman can expect to pay $2,700 a year.

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