Should I buy Life Insurance for my Parents?

As an insurance professional, I used to get this question from existing clients all the time. It’s not surprising that many adult children out there feel like they will be responsible for the funeral and burial of parents who for whatever reason, have very little life insurance or no life insurance at all.

In most cases, we have found that our clients’ parents don’t have life insurance for several common reasons:

• Either one or both parents always had life insurance through their employer and didn’t understand that when they retired their insurance would not follow them. Then, when they applied for a replacement policy they couldn’t afford it or could not medically qualify.
• In a lot of cases, the parents of our clients had to withdraw the cash value in their policy or surrender it in order to make ends meet during the market crash in 2007 and 2008. When they attempted to replace their coverage they found the premiums to be unaffordable and just put off getting it done.
• Some clients’ parents’ never bought life insurance because they assumed their church, the military, or Social Security would pay for it.

The bottom line is if you discover your parents do not have enough life insurance or none at all, it’s very likely that siblings are going to have to foot the bill when either of them passes away.

Is it Legal for Me to Buy Life Insurance on my Parents?

Yes, as long as you have their consent. Insurance companies will allow you to purchase a policy on your parents if you have consent and you have insurable interest. Insurable interest in this case would be your obligation as a blood relative to pay for a parent’s funeral and burial if they died without life insurance or available cash in their estate to cover the costs.

There are other reasons for buying life insurance on a parent or parents than just paying for funeral and burial costs, but for this article we’ll focus on final expenses since they are the most common reason. Final expenses generally include funeral and burial expenses, unpaid medical bills, and nursing home or hospice expenses that were not paid by Medicare. Also, if you parent or parents co-signed on a loan for you, the lender might consider the loan in default and come to you for the unpaid balance.

How Much Life Insurance Should I Buy to Cover Final Expenses?

As we mentioned earlier, final expenses are typically made up of funeral and burial expenses, unpaid medical bills, and unpaid nursing home or hospice costs. Although you cannot determine the amount you might need for medical and nursing home expenses, you can get a very close estimate of funeral and burial costs.

There are several websites that you can visit that have published what the average cost of a traditional funeral is:

• National Funeral Directors Association: $8,755
• Partingcom: $9,000
• Funeralbasics.org: $8,508
• Obittree.com: $8,052

Most of these funeral planning websites will breakdown their funeral estimate by the services and products that are generally purchased for an average funeral. Certainly, your cost could be higher if you add some of the bells and whistles that funeral homes can provide. Or, your costs could be less if you purchase the products like a casket and marker from a third-party.

Additionally, your funeral and burial costs will differ depending on what part of the country you live in and whether your church or fraternal organization helps with the costs of a member’s funeral. For example, many churches will allow a memorial service for a member to be held in their sanctuary or fellowship hall at no charge. And some fraternal organizations like the Masons or Shriners will contribute to the cost of a member’s funeral. Additionally, most insurance  professionals will encourage a client to add an additional $3,000 to $5,000 in death benefit to cover unpaid medical and nursing home expenses.

What type of Life Insurance Should I Buy for My Parents?

Most people are aware that Term Life Insurance is the most affordable life insurance product in the marketplace, however we don’t recommend buying term insurance for your parents unless they are under 60 years old and healthy. Unfortunately, in most cases we find that prospective clients who are 60 or older typically have health issues that may cause their life insurance rates to go up or even prevent them from qualifying for a policy. Also, term insurance is temporary and must be renewed at the end of the term at much higher rates. Additionally, most insurance companies require a minimum $50,000 face amount.

For these reasons, we recommend using whole life insurance because these policies generally have very liberal underwriting standards and do not require a medical exam to purchase a policy. In fact, in most cases you and your parent(s) can purchase life insurance over the phone from an independent insurance agent who typically represents most of the highly rated insurance companies that offer final expense insurance.

By using whole life insurance for your parent’s final expenses, your policy will provide the same guarantees and benefits of a traditional life insurance. You will know that the policy cannot be canceled by the insurer for any reason other than non-payment. You will know that the premium cannot be increased by the insurance company for any reason once the policy is issued. You will also know that the policy will build cash value over time that you, the policy owner, can access through loans or withdrawals.

How Much Should I Expect to Pay for Life insurance for my Parents?

Like traditional life insurance, final expense life insurance rates are based on the age and health of your parents, and the amount of life insurance you wish to purchase.

To get an idea of the amount of premiums you’ll be looking at, we are providing actual quotes for a $15,000 Final Expense Policy ($10,000 for funeral expenses and $5,000 for unpaid medical bills) for a male and female non-smoker in good health:

 For insurance rates for your parents’ actual age, please use our instant-quoter or call the office during normal business hours. We’d be happy to discuss your individual circumstances and make recommendations based on your budget.