There’s nothing like feeling secure even when tough times come.
An accident, a terminal disease, or sudden death of a loved one can change the course of your life. This is difficult if you wholly or partially depend on those loved ones for your needs, such as your parents.
Ask yourself this question–what would you do if something happens to your parents?
Will you be making ends meet? Will you be financially independent?
This is why life insurance is important, especially when it comes to families with dependents. If you are wondering if buying life insurance for your parents is a good idea, you have to understand the reasons why you need to get it.
Take note–buying life insurance, although valuable, is not for everyone.
Take a look at these possible reasons and see for yourself if you really need it.
Tip: If you decide that you have to get a policy for your parents, make sure to read about our life insurance companies ratings. We reviewed over 50 of the top companies available. But, first…
Possible reasons to buy a life insurance for your parents
There are a couple good reasons why children would buy life insurance for their parents. Here are the 2 main reasons:
1. You are financially dependent on your parents
Although this is something difficult to admit, you have to think about a possible scenario in case your parents passed on.
Would you be able to pay for your own expenses?
Perhaps you may be in a tough spot and you know that you can’t afford to sustain your needs in case the unexpected happens. This is a major reason to purchase a life insurance for your parents.
2. You need to pay some expenses in the future in case your parents pass away
Another reason to consider is the possibility of paying a large sum of money in case your parents pass away.
It could be an outstanding debt.
It could be a joint business venture with your parents where you’re set to pay back your investors.
It could just be knowing that you’re able to pay hospital bills or any other fees in case your parents unexpectedly gets sick and passes away.
If you agree with any of these reasons, then life insurance for your parents is something in the cards for you. Here are some things you may want to know before making a decision:
[TIP] The average burial can cost you anywhere between $8,000 to over $10,000 and cremation costs less. Your average cremation coupled with a funeral service may only run your around $2,000-$4,000.
5 Things to know before buying life insurance for your parents
Here are the Top 5 things you should understand before you purchase a life insurance policy for your parent:
1. Understand your goal
Purchasing a life insurance is a big commitment.
Make sure that you pick the right policy based on your goals. Mainly, there are two kinds of life insurance:
- Permanent Life Insurance
- Term Insurance
Permanent Life Insurance, like its name suggests, lasts throughout the person’s life. The main purpose of purchasing one is to cover final expenses such as hospital bills, funeral bills, estate, and other expenses that are set when one passes away.
On the other hand, a cheap term life insurance policy only lasts for the term of the contract, which is usually 20-30 years. This type of insurance is mainly to secure expenses that are temporary, such as a car loan, a mortgage, an SBA loan, or an income replacement for the time being.
Be realistic and think about what expenses need to be covered. From there, you can decide which life insurance type you should be applying for.
2. Make sure that the policy owner and beneficiary are the same person
In some cases, life insurance policies turn into “taxable gifts”.
How is this possible?
When it comes to life insurance, there are three main parts–the insured, owner, and the beneficiary. For example, if the insured person is your mom, you are the owner, but your sister is the beneficiary, then IRS may consider it as a taxable gift to your sister.
Unless necessary, prevent additional taxes by making the owner and beneficiary as the same person.
3. Independent agents can be a big help
Here in Life Insurance Blog, we help you make the right choice based on your goals.
Agents of companies may be a little too biased to win you over–and you don’t want that.
You want to make the right choice depending on the owner’s capability to pay, and how much of a coverage you would need. Independent agents work with various insurance companies so you can be assured that they know the ropes–that is, the policies, and which ones are best fit for your needs. They’re not looking to put you with any specific company, because they’re paid a commission no matter who you buy from.
4. Get as much information as you can about your parents’ health
A major factor in the coverage and costs of a life insurance is your parents’ health. It determines if your parents are eligible for a life insurance plan, the types of coverage available, and how much premium you will be paying in the long run.
Without your parents’ health history, it would be difficult to find an ideal life insurance plan.
You’re wondering, what are some important health history information to obtain?
- Prescription medications (include both past and present ones)
- Past and present medical conditions such as heart issues, cancer, diabetes, neurological disorders, hypertension, etc. (find out the date of diagnosis)
- Major health-related events such as stroke, heart attack, seizure, surgery, accident, etc.
- Height and weight
- Past and present alcohol abuse and tobacco use
- Past and present illicit drug use (if they smoke heroin, marijuana, cocaine, inhalants, or abuse prescription drugs)
- Driving violations or DUI within five years
- High-risk activities and behaviors (extreme sports such as rock climbing, scuba or skydiving.)
Having these information in print can help you find a good insurance policy and will set companies to provide a realistic quotation.
5. Get your parents’ consent
You may be thinking: “Duh! Of course!”
Truth be told, there are actually some people who think they can get through the hoops without having their parents’ consent for a life insurance. You cannot apply for a life insurance policy under your parents’ name without their consent, much more without their signature in various forms.
Now, there are a lot of ways to get your parents’ consent. You don’t have to physically bring your parents to apply. It can be either through:
- Voice signature: A recorded verbal agreement stating that your parents consent to the life policy application
- Email signature: Some companies can send their policies to the insured and the owner. By clicking a few buttons and entering details on a field, you can confirm your parents’ consent via email.
[TIP: Pay those premiums!] Once the life insurance policy is in force, it’s extremely important that you or your parents keep paying the policy's premiums. If you stop payments, you will forfeit all of your previous premiums and the beneficiary will not get paid a death benefit.
Research and preparation is key
The bottom line in applying for a life insurance under your parents is having these two skills: research and preparation.
Do your research about insurance policies and don’t be afraid to ask questions. Prepare the appropriate information before asking for a quote.
A successful policyholder is an informed one.
As you do these things, it’s more than likely that your life insurance application is on its way to approval.
If you’re not sure where to begin, give us a call. Our agents provide a free, no-pressure, educational approach to life insurance. We’ll compare dozens of the top companies in minutes to show you your most affordable options.
