Can I Get Life Insurance for My Parents?

Sean McGinn is an assistant director of Product Positioning in the Insurance Solutions department at Northwestern Mutual.

While getting a life insurance policy on your spouse is common, it may not have occurred to you to get life insurance for your parents. But if you help your parents with their expenses or currently receive some financial support from them, buying life insurance for your parents could make sense.

Essentially, the more tied your financial situation is to your parents, the more important life insurance for your parents may be. In fact, if you intend to be the owner of the policy, before you can buy life insurance for your parents, you’ll need to prove you have an “insurable interest” in them, meaning you would suffer financially if they pass.

Getting life insurance for your parents can help ensure your own financial plan isn’t strained after they pass away. Here’s how.

Why life insurance for your parents can make sense

One of the most obvious reasons people may consider purchasing life insurance for their parents is to pay for their parents’ funeral expenses. But there are other reasons and costs to consider.

Paying for end-of-life expenses for a surviving parent

With few people financially prepared to cover expenses like long-term care and nursing care, it’s likely that your parents may not have enough retirement savings to cover end-of-life expenses for both parents. A death benefit for your parents can help the surviving parent pay for long-term-care expenses—like paid caregiving, that they may not otherwise be able to afford.

Covering your childcare expenses

If your parents provide childcare or other types of household help for your family, you may have to pay for those services after they’re gone. The proceeds from a life insurance policy on your parents can provide a financial cushion to hire paid caregivers if needed.

Leaving a legacy

Your parents may want to create a legacy for their grandkids. If so, life insurance for your parents can be a great way for them to leave something behind for your kids. It can help cover future costs like college, a first home or a wedding.

Having life insurance as a part of your parents’ estate plan can ensure that you’ll have money to pay any inheritance taxes or estate taxes. And if you inherit property that still has an outstanding mortgage, the death benefit can also help cover the cost of the home loan.

How to talk to your parents about life insurance

You can’t buy life insurance on someone without them knowing. Before buying life insurance for other people—even your parents—you need their consent.

So in order to get a policy for your parents, you’re going to have to talk to them about it first.

Earning your parents’ consent

If your parents aren’t familiar with the benefits of life insurance, you may want to bring them up to speed. It can be helpful to show them how life insurance can provide financial protection for the loved ones they leave behind.

They may not have considered how much it might cost for a surviving spouse to pay for long-term care later in life, or the financial implications of unpaid debts or mortgages on other family members if they die sooner than expected.

Your financial advisor can help you explain the value of life insurance within your parents’ larger financial plan. Your advisor can also help with other important money conversations you should have with your parents.

Preparing your parents for health examinations

Insurance companies typically use a medical exam in their underwriting process to set the premium for a life insurance policy.

Your parents should expect to provide a urine sample, have their blood drawn, have their blood pressure taken and get other vital signs checked.

Uncontrolled high blood pressure, high cholesterol, smoking, diabetes or any other serious medical condition could increase your parents' life insurance premiums. In some cases, they may not be eligible for coverage.

However, in recent years, more and more insurance companies have allowed people to purchase life insurance without a medical exam with something called simplified issue life insurance. Simplified issue underwriting is available to people up to age 70. It’s more streamlined and requires applicants to answer some medical questions.

Your parents may be able to get immediate coverage, but the tradeoff is: these policies usually have a lower death benefit and higher premiums than traditional life insurance. And in some cases, the policy will only pay out the death benefit if the policy has been in force for at least two years. (If your parents would die within that two years, you’d only receive the premiums paid—not the full death benefit.) Terms will vary by policy, so it’s important to read the policy carefully.

Life insurance policy options for parents

There are several types of life insurance that may make sense for your parents: term life, whole life, guaranteed life and final expense insurance. Here’s how each works.

Term life insurance

If you're only looking for coverage for a limited time, term life insurance can be a good choice. The premiums for term life insurance are usually a more affordable option.

• Term 10 is a popular policy because it has low premiums and offers financial protection that lasts for up to 10 years. The maximum issue age for a Term 10 policy is age 70.

• Term 80 can also be a good choice if you’re looking for life insurance coverage that stays with you until you turn 80. The maximum issue age for a Term 80 policy is 65.

Whole life insurance

Whole life insurance is a type of permanent life insurance. It provides coverage that will last until the insured person dies (as long as premiums are paid), and it provides benefits while you’re living. Your policy earns cash value that could be accessed for many different reasons.¹

Guaranteed issue life insurance

Because guaranteed issue life insurance does not require a medical exam, it’s often considered by people who wouldn’t qualify for a policy that requires a medical exam. However, there is a waiting period before you’re eligible for benefits.

If your parents die during the waiting period, the total amount of premium you paid into the policy would be returned, but no death benefit would be paid out. Also, death benefit you can get from guaranteed life insurance is limited. If your parents can qualify for term or whole life insurance, those tend to be better options.

Final expense insurance

Final expense insurance is often used to describe a whole life insurance policy with a small death benefit intended to cover funeral costs and end-of-life medical bills.

Technically, the death benefit from a final expense insurance policy doesn’t have to be used for funeral expenses. The beneficiary can use it however they’d like. But because final expense insurance is easier for people with poor health to qualify for, its premiums can be more expensive than a typical whole life policy. If your parents qualify for a whole life policy, there’s no reason to get additional final expense insurance.

Tax impact of purchasing life insurance for your parents

Life insurance death benefit payments are typically not taxed.

If you are both the policy owner and beneficiary of your parents' life insurance policy, taxes on the death benefit likely won’t be an issue. The same applies if your parents are the owner/payer of the policy and you or your family members are the beneficiaries. However, it’s always a good idea to talk to a financial advisor to help you understand life insurance options for your parents and how they could impact both theirs and your financial plans.

How much is life insurance for parents?

The cost of life insurance for your parents will vary depending on the type of policy you choose. It also can depend on your parents’ health and age. Your advisor can help you find the right policy for your situation and help you understand the costs.

It all starts with getting to know you and your family. Your advisor will ask you and your parents questions to understand what matters. Then, they’ll help make tailored recommendations to help your family protect what matters.