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Life Insurance for Parents

parents - mom and dadThe idea of buying life insurance on your parents’ life is not pleasant. Searching through various insurance companies and policy types is difficult enough – add to that the fact that searching for life insurance for your parents requires acknowledging that he/she will die some day, and the experience has the potential to be an emotional and depressing one. The task can be further complicated if you are working with siblings or an extended family all of whom will have their own ideas of what is the optimal insurance policy.

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There are, however a number of reasons that you may want to undertake the task of purchasing insurance for your senior parents. A life insurance policy can alleviate worries about burial expenses and can take care of any outstanding debts so that the surviving spouse and children do not have to deal with selling off the assets of the estate to pay off the debts.

Before an insurance company will allow you to purchase a policy on someone else’s life you will have to show the beneficiary has an insurable interest or will suffer a financial loss at the death of the insured. In the case of insurance you are taking out on a parent with you or the parent’s surviving parent named as beneficiary an insurable interest is usually not difficult to demonstrate. Once an insurable interest is established you will have to determine how much coverage and what type of policy will best meet the needs of your parent’s circumstances.

The amount of coverage needed depends on the purpose for which you are purchasing the insurance. If you are buying the policy to cover burial expenses, an insurance policy with a small payout will likely be sufficient. You may want a larger payout that can be borrowed against in case of large medical expenses or that in the event of death will help pay off a mortgage, auto loan or estate taxes.

There are basically two types of insurance policies to consider: whole life insurance or term life insurance. Which type of insurance policy is better depends on the unique circumstances for which you are purchasing the insurance.

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Whole life insurance premiums tend to be more expensive, however, the whole life policies never expire like a term policy and the value of the policy is considered an asset. That means you can use the increasing cash value of the policy as collateral for a loan to cover emergency medical expenses or to cover expenses until the estate is settled, and depending on the policy a whole life policy may have declining premiums or roll earned interest into the principal.

With term insurance the insured will only be covered for a specified period of time – often 10 or 20 years. For elderly parents with a life expectancy of less than the term these policies may prove to be an inexpensive alternative to whole life insurance. Just remember if your parent outlives the term the policy ceases to exist and you will receive nothing in return for the premiums paid on the policy.