But how do you go about doing this, and what is the appropriate amount and type of coverage?
We will cover these questions and more in this article.
Essentials for Buying Life Insurance on Your Parents
1. Is Buying Life Insurance on My Parents a Good Deal?
Prior to age 85, it seems life insurance can still be purchased for a relatively affordable premium. As you can see, the older your parents get, the higher the cost for the same coverage.
Here are a few quotes for $100,000 of coverage:
|60 years old||$72 per month|
|65 years old||$132 per month|
|70 years old||$229 per month|
|75 years old||$395 per month|
|80 years old||$767 per month|
Please note the quotes above are for a 10 year term policy for a healthy male, who can qualify for non tobacco rates, and are accurate as of 6/10/2013. Actual rates will depend on your parents’ health.
…Ok, back to question #1 – “Is it a good deal?”
Obviously, life insurance can still be quite affordable if your parents are in their 60’s or 70’s, and they’re only getting $100,000 of coverage, as in the example above.
But let’s say you need more coverage than that, and they are over age 80… Is it still worth the cost?
For example, you would pay $14,560 per year for an 83 year old mother in good health for a $250,000 policy guaranteed for life with North American Co for Life and Health.
If we assume our 83 year old has a life expectancy of 10 years, you will have paid $145,600 into the policy after 10 years. If she were to pass away at any point before that, it seems to be a great rate of return on your premium. You certainly wouldn’t be able to match that kind of return in any alternative investment.
If your parents are younger than 80 and in good health, life insurance is an incredible leveraging tool, and makes even more sense than in the example above.
Honestly, life insurance loses leveraging power after age 85 and is pretty expensive. See the quote form on the right for an instant quote.
Quick “Life Insurance for My Parents” Video Tips
Ownership of Policy: One of the first things I ask the child when he/she calls me is who would be the owner and payor of the policy. In some cases, children are simply calling on behalf of their parents who are not internet savvy, and are doing nothing more than helping their parents, who don’t know how to buy life insurance, with the quoting and application process, but that the parents will be paying for the policy.
In other cases, you have children who will be the owner of the policy, pay the premiums, and also be the beneficiary of the death proceeds. Usually this is okay as long as the child can prove an insurable interest. This is 100% legal, but will require approval by the insurance company.
An insurable interest means that the child would be somehow financially affected by the death of his or her parents. So if your parents have a big mortgage on their home, and you don’t want to inherit their debt, life insurance may be in order. Or if you are responsible for your parents funeral and burial arrangements, life insurance may be used for this…(continue to part 2)