Final Expense Insurance

10 tips to buying life insurance for your parents

It’s common for kids to buy life insurance for their parents.

But before you sign on the dotted line, here are some tips to help you find the best policy. You can even see sample prices, how the application process works, and much more.

Topics covered in this article

Can you buy life insurance for your parents?

Yes, you may purchase life insurance for your parents to pay for their final expenses or other debts. They must agree to the coverage and sign the application.

Buying $2,000- $50,000 in coverage requires no explanation regarding why you want the coverage. However, more than $50,000 will likely require you to explain why you need that much coverage.

 

10 tips to help you find the right plan for mom or dad

Not everyone needs to buy life insurance for their parents. Some do, and some don’t. It depends on your situation. Sometimes a life insurance policy on your parent just isn’t necessary.

Here are ten proven tips to ensure you purchase the appropriate policy and get the best deal possible.

 

 

1) Select the right kind of policy to accomplish your goal

As you may know, life insurance is a very general term. There are many different kinds of policies available, and they all function differently.

Life insurance is a tool used to satisfy a purpose (what the money would be used for). However, not everyone has the same goal in mind, so there is no one-size-fits-all type of life policy.

For example, some people want life insurance proceeds to pay off a mortgage or other debt. On the other hand, some people desire a plan to cover final expenses.

Because those needs are not the same, they warrant a different type of life insurance policy.

To ensure you accomplish your task, it’s vital that you select the appropriate type of life insurance that is best suited to achieve your goal.

There are two main types of life insurance. There’s permanent and temporary insurance coverage. They each have their pros and cons and should be used for different objectives.

 

Permanent whole life insurance & when to buy it

permanent whole life insurance policy is just that- a permanent plan that will be with you for your entire life. It will not expire the way term insurance does.

It would be best to buy a whole life insurance policy when you have a want or need that lasts for an unlimited period. Here are some of the most common examples:

  • End-of-life expenses (funeral bills, debts, medical bills)
  • Donation to family or a charity
  • Estate planning

Not surprisingly, the biggest pro to whole life insurance is the fact that it lasts forever. You can always count on it being there to accomplish your objective.

The drawback with whole life insurance is that it costs more than term insurance.

With whole life insurance, the carrier will 100% have to pay a claim one day. With term life insurance, they are banking on you outliving the policy. That’s why term life insurance costs much less.

Again, just remember that if the need is permanent, your life insurance should be too. If the need is temporary, then and only then should you buy a policy that is also temporary.

 

Term insurance & when to buy it

term life policy is designed to expire after a preset period of time. Once the term is up, the coverage simply ends. For example, it may last 5, 10, 20, or 30 year years.

You should only buy a term life plan if your goal is to cover a temporary liability that will day end. Here are some of the most common examples:

  • Mortgage note
  • Car note
  • Other financial debt
  • Income replacement

The biggest pro to term insurance is the cost. By a wide margin, it’s the least expensive of all types of life insurance. However, the drawback is that it expires one day. That’s why you should only buy term life insurance when your objective is temporary. 

In general, insurers will only issue term insurance that lasts up to around the age of 80. Most all term insurance ends at, before, or shortly after the insured turns 80.

If you have a want or need that is permanent, you shouldn’t buy a term plan. If it were to expire before your need is fulfilled, then you wouldn’t resolve the task you set out to accomplish in the first place.

Don’t be allured by the lower cost of a term plan when you have a permanent objective. The money you are “saving” each month won’t help you when the policy is not there when you need it most because it has already expired.

 


 

2) Avoid tax consequences by doing this

If you were to imagine a life insurance policy as a shape, it would be a triangle. It’s made up of three points which are:

  1. Insured: The individual whose life the policy is insuring.
  2. Owner: The individual who pays the premiums and has control of the policy.
  3. Beneficiary: The individual designated to receive the death benefit upon the passing of the insured.

To avoid a potential tax bill, you must ensure that two of the three points are the same.

If all three points are different people, then the death benefit could be considered a taxable gift to the beneficiary.

This situation is often referred to as the Goodman Triangle or the Unholy Trinity.

It’s important to note that if the proceeds of a life policy are considered a taxable gift (which is not always the case), the tax burden falls upon the policy owner. The beneficiaries are not those who owe the taxes.

Here’s a basic example.

John wants to buy coverage on his mom Mary, and he names his son Steve as the beneficiary. The breakdown would be as follows:

  • Insured= Mary
  • Owner= John
  • Beneficiary= Steve

Upon the passing of Mary, Steve will receive the policy’s proceeds since he is the beneficiary. The IRS will view the death benefit as a gift to Steve since John was the policy owner.

He paid for a service (the life insurance policy) that resulted in Steve getting a lump sum of money. In the IRS eyes, they look at that as no different from if John had just given Steve a personal check for $20,000.

Just remember, if you are considering buying life insurance on one of your parents, make sure you are both the owner and the beneficiary. Then you have nothing to worry about.

 

Other tax considerations

Hopefully, we don’t have you worried about creating a tax burden for yourself. As we said, as long as two of the three points are the same individual, there won’t be a tax burden.

You should know other stuff that will also aid you in ensuring you don’t create a tax bill for yourself.

First, the IRS allows you to gift a certain amount annually to someone without paying taxes.

In 2020, they allowed for a gift of up to $15,000 per person. That means you could gift someone up to $15k and would not need to worry about paying taxes on that amount.

So let’s say you did buy a life policy for your parents. If the face amount is $15,000 or less, the policy structure does not matter because it falls beneath the taxable threshold.

Second, you can always buy a life plan on mom or dad and not be the owner. Instead, you would merely be the payer. You would only do that if your desire were not to be the beneficiary.

You could list the insured (mom or dad) as the owner. That would satisfy the two points requirement (your parent would be the owner and the insured).

Being the payer and not the owner is another way to set up the policy properly if your goal is to name someone other than yourself as the beneficiary.

Bottom line?

There are many ways to ensure you don’t create a tax burden for yourself. Working with a savory insurance agency will all but ensure you don’t get a bill from the IRS.

 


 

3) Work with an independent agent

Know this. There is no single life insurance company that can be the best option for everyone. It’s flat-out impossible.

They all accept and reject various health issues, which is why there can’t be one company to rule them all.

Here’s the bottom line:

To find the best life insurance policy for parents, it’s imperative that you work with an independent agent because only they can compare offers from dozens of insurance companies. They’ll simply match you with whichever company suits you best.

 

In the realm of life insurance, there are two types of agents that you will deal with:

  1. Captive agent: An insurance agent who can only represent a single company. For example, State Farm is a captive insurer. A State Farm agent can only sell you State Farm insurance. They cannot represent any other insurance company. State Farm strictly forbids it.
  2. Independent agent: An insurance agent that is free to represent as many insurance companies as they want. For example, Mutual of Omaha is an independent insurer. They don’t care how many other insurance companies an agent represents.

What type of agent you work with will heavily influence how good of a deal you will get.

Think about it this way.

In your left hand, you have one single life insurance company. In your right hand, you have 30 different insurance companies.

If you had to choose a hand when shopping for life insurance for one of your parents, which hand do you think gives you the best chance of success?

That’s the power of working with an independent agent.

Oh, and here’s something really cool.

There is no cost for working with an independent agent. All agents (captive & independent) always get paid by the insurer, which is why their services never cost you any money.

 

Why having choices is so critically important

Every insurer underwrites differently, which is to say they all respond to health issues in their own way.

For example, one company might not like people with diabetes and will decline them or charge them much more due to their diabetes. On the other hand, another company might be okay with diabetics and not respond adversely in any way.

Let’s say your mom or dad has diabetes. If you work with a captive agent representing a company not fond of diabetics, you are seriously out of luck.

At the same time, working with an independent agent would simply pivot to companies that are okay with applicants who have diabetes.

See the difference?

The above example plays out all the time. If your parents have any health issues, it is even more critical to work with an independent agent. They can match you with whichever company views their health most favorably.

Going the independent route will result in much better coverage and premiums every time.

 


 

4) Gather as much information as you can about your parent’s health

Your parent’s health history is the single most influential factor determining which company is best for them and the exact cost.

For that reason, try your best to become as familiar as you can regarding their health before you begin talking to agents.

Any agent worth their salt will try to gather info about your parent’s health history. That will allow them to do their job to find you their best plan.

Here’s the raw truth of it.

If you don’t know about their health, there’s no way an agent can help you. Sure, you can still get price estimates based on their age and gender, but quotes done that way are theoretical at best. To get any semblance of an accurate quote/offer, you’ll need some information about their health.

It would be best if you tried to obtain the following:

  • Past & present prescription medications (the more you can get, the better)
  • Past & present diagnosed conditions such as high blood pressure, COPD, CHF, diabetes
  • Prior significant events such as heart attacks, strokes, hospitalizations, or cancer
  • Height and weight
  • Tobacco and alcohol usage
  • Any high-risk habits such as sky diving or rocking climbing
  • Details on any driving violations within the last five years

What if you can’t get all that info?

Don’t worry if you can’t get all that information. You really should try, but if you can’t, at least get a list of their medications. Their medications will paint a strong picture of what health issues they’ve had.

As agents, we can get a preliminary understanding of their overall health just by knowing the medications.

Without question, we would need more detailed information about them before completing an application. However, medications alone can often render reasonable estimates for quoting purposes.

 


 

5) You do not need to be with them to apply

Back in the day, you had to physically sign papers which meant you and your parents would need to be in the same place simultaneously.

That’s now how it works in the modern era.

You and your parents could live in totally separate states and still buy life insurance on them. 

Many life insurance companies today have electronic application processes in place that make this possible. In general, two methods allow you to buy a life policy on your mom or dad remotely.

  1. Voice Signature: With a voice signature process, the carrier will collect all your information over the phone. They’ll obtain all the necessary authorizations and ask the appropriate health questions (if any). In the end, they’ll have you both sign the application with your voice. Your voice signature will represent your consent, just as if you had physically signed the application with an ink pen. Generally, these voice signature processes last anywhere from 10-20 mins. Most of them will render an immediate decision regarding the applicant’s eligibility.
  2. Email Signature: With an email signature, the carrier will send out two emails. One will go to you, and one to your parents. You’ll both sign the application by clicking a few buttons. Some email signature carriers will render an immediate decision regarding your parent’s eligibility. However, some may take 1-3 business days to conclude an underwriting decision.

As you can see, there is no need for you to wait until you visit one of your parents before buying coverage on them. You can do it any time anywhere!

 


 

6) Mind your budget

You may want to have a certain amount of coverage on your mom or dad, but the question is, can you afford it?

Just remember this.

If you cannot comfortably afford the monthly payments 12 months out of 12, you should not do it. Buy less coverage.

Don’t get aggravated or hung up because your budget won’t allow you to purchase what you want.

Some life insurance coverage on your parents is much better than no coverage!

At the end of the day, you’re buying life insurance on your father or mother because you want the money to be used for something (paying a debt or final expenses).

Isn’t it better to have some money rather than no money, even if that amount of money is less than you’d like?

Too many times, we’ve seen clients try to take on more than they can chew. It always ends badly because one day life will happen, and your will bills will temporarily rise. When that happens, life insurance on your parent is likely the first thing to go, and then you’ve wasted your time and money.

Whatever the monthly payment is, you shouldn’t feel remotely unsure about its affordability. Let your budget be your guide, and you won’t go wrong.

 


 

7) Make sure you have their consent first

You cannot buy any form of life insurance on someone else without their consent. The insured must agree to the policy.

This rule is valid even if you have power of attorney or buy a guaranteed acceptance policy with no health questions or medical underwriting.

The only exception to that rule is when you’re buying whole life insurance for a child.

Understand that even if you pay for the life insurance on your parents, you still need their consent.

For the reasons stated, you should speak to your mom or dad to ensure they are on board with you taking out the coverage.

Most of the time, their involvement consists of answering some health questions and maybe completing an e-signature. It won’t require much of their time and effort, but they will need to be involved.

So save yourself some time and headache and ask mom or dad first.

 


 

8) Avoid guaranteed acceptance life policies if you can

guaranteed issue life insurance policy is one where there is no medical or lifestyle underwriting. There are no health questions or anything else. Your acceptance is guaranteed. There are only two requirements:

  • The insured lives in a state where the insurer offers the product.
  • The insured has the mental capacity to enter into a legal contract.

If they satisfy those two requirements, they can get a policy.

However, just because you can get one of these guaranteed issue policies doesn’t mean you should. In fact, you should only utilize them as a last resort.

Here’s why we say that…

  1. There’s always at least a two-year waiting period before a death benefit would become payable. Because they know nothing about the applicant’s health, they must institute this provision to prevent people on their deathbed from buying a policy and collecting a check a couple of weeks later. If the insured were to die during the first two years of the policy, the insurance company would merely refund all premiums plus 10% interest (on the money paid, not the death benefit). After two years have passed, the insurer will pay out the total face amount for any reason moving forward.
  2. They cost much more compared to life insurance plans that do have underwriting. Because they know nothing about the applicant’s health, they take on a much higher level of risk. For this reason, they must charge more for these plans to cover that increased risk. Plans that assess an applicant’s health cost less because the insurer knows the insured doesn’t have certain health conditions. Therefore, they can charge less.

Ultimately, if you want life coverage on your parents that starts immediately and costs less, avoid guaranteed issue plans unless that’s impossible (it usually is).

 


 

9) Don’t limit yourself only to companies you’ve heard of

In 2016, there were 5,977 insurance companies in the USA (including territories). It’s unlikely that you’ve heard of even 1% of them.

So are 99% of life insurance companies bad because you’ve never heard their name before? Definitely not.

Here’s the bottom line.

Very few insurance companies advertise on a mass scale to ensure they are a household name. The ones that don’t are just as credible, trustworthy, and financially stable as other insurance carriers that do advertise through mass media channels.

So be open to having insurance on your parents from an insurer where their name is unfamiliar to you.

We say that because every life insurance company accepts and rejects different health issues. What if your parents have health issues (like diabetes or heart disease) where the notable companies won’t take them, but another lesser-known insurer will?

Answer: Go with the other insurer you’ve never heard of because they will accept your parents and offer you a much better deal.

And make no mistake, you can absolutely trust these other companies. Almost all of them have an A rating or higher with A.M. Best, have been in business a long time, and have strong balance sheets. The point is; you can trust they will be in business and capable of paying your claim when the time comes.

If you want to secure the best life insurance for your parents, do not limit yourself only to companies that you’ve heard of before.

 


 

10) Don’t put this off

When it comes to life insurance, it pays to be proactive. You simply cannot benefit by waiting.

So if you need or want parents’ life insurance, do it now. You’ll be glad you did. 

Now you may be wondering, why do we make this claim?

It’s a fair question. Consider the following:

  1. The older the insured is, the more it will cost.
  2. Your parent’s health is not guaranteed. If they experience a downturn in their health, it could severely impact their rates or eligibility altogether.
  3. It may be impossible to avoid a partial or complete two-year waiting period. There are some very high-risk health issues where this is a fact. In these situations, you want to start chipping away at the waiting period as soon as you can.
  4. Life gets busy, and if you put this off, it may be years before you get back around to it. We see it every day. Right now, the topic of life insurance for your parents is at the forefront of your mind. Don’t let it escape you without acting! You never know when you’ll remember to do it (if ever).

Basically, if you want to pay less, get coverage sooner than later. Don’t put this off. Get your parent’s life insurance coverage now.

 

Reasons why you should buy life insurance for parents

If you’re unsure whether or not you should even take out a life policy on your mom, dad, or one of your grandparents, fear not.

 

The following question will help you figure it out.

Ask yourself…

Will you need money to pay for an expense(s) that arose specifically because your parents passed on?

If Yes: You should absolutely take out a life insurance policy for your parents to pay for whatever bill(s) would arise due to their passing.

If No: You don’t need any coverage on them.

Some of the most common reasons why people buy coverage on mom or dad:

  • Final expenses
  • Medical bills
  • Debts (credit cards, personal loans, mortgage)
  • Money is needed to take over their home or other property.

You may or may not need to buy a life insurance plan for your parents or grandparents. It just depends on your family’s situation.

 

How to choose the right amount of coverage

You’re buying life insurance for your parents because their death would result in a financial loss of some kind.

Just ask yourself…

How much will it cost to [ insert your objective here ]?

Your answer will tell you how much coverage you may need.


Insider Tip: Choosing the right amount of coverage is important. There’s no doubt about it. However, selecting the correct type of policy is far more critical. As noted in tip #1, the kind of policy you choose is, without question, the most crucial part of the process when buying parent life insurance.


 

Funeral expenses

According to the National Funeral Directors Association, the average burial costs anywhere between $8,000-$10,000.

Cremation costs are substantially less. The average cremation with a funeral service will only run about $2,000-$4,000.

Now, your exact needs may vary from these averages depending on how elaborate you want your parent’s memorial to be.

With that, those averages give you an excellent baseline to determine how much coverage you’ll need if covering final expenses for seniors is the reason why you want coverage on them.

 

Financial debts

This one is straightforward. Just add up the total amount of debt you’ll need to pay off. That total would amount to how much coverage you would need to buy on your parents.

 

Medical bills

Just like financial debts, all you need to do is add up all their medical bills, and that’s how much coverage you’ll need.

 

Quotes when looking for coverage to pay for their final expenses

If you’re buying a policy on your parents to pay for their end-of-life costs, you’ll need a final expense insurance policy to do that.

Below are some actual final expense life insurance quotes.


Important Note: You are not limited to these face amounts. You can buy ANY amount of coverage between $1,000- $100,000 in final expense protection. Also, you can instantly view prices from dozens of insurance companies in your state by using the quote tool on this page.


Keep in mind that if your mom or dad has smoked cigarettes within the last 12 months, they will certainly pay a higher premium. Also, your parent’s health of your parents could affect these prices or eligibility.

 

AGEFemale
$10,000
Male
$10,000
Female
$20,000
Male
$20,000
45$22.61 $25.45$42.01$47.69
46 $23.02 $26.17$42.84$49.15
47$23.55 $27.02$43.89$50.84
48$24.18 $27.96$45.16$52.72
49$24.48 $28.52$45.76$53.85
50$24.67$29.16$46.14$55.11
51$25.45$30.30$47.70$57.41
52$25.88$31.12$48.56$59.04
53$26.62$32.20$50.04$61.20
54$27.47$33.61$51.73$64.01
55$28.40$35.09$53.60$66.98
56$29.27$36.45$55.34$69.70
57$30.06$37.91$56.91$72.61
58$30.83$39.27$58.46$75.33
59$31.70$40.82$60.20$78.43
60$32.87$42.76$62.53$82.31
61$34.51$45.38$65.82$87.56
62$36.06$47.90$68.92$92.60
63$37.72$50.52$72.23$97.83
64$39.36$53.14$75.53$103.08
65$41.01$55.76$78.82$108.31
66$43.44$59.35$83.68$115.49
67$45.86$62.93$88.52$122.66
68$48.29$66.53$93.38$129.85
69$50.81$70.11$98.42$137.02
70$53.24$73.70$103.28$144.20
71$56.63$78.36$110.06$153.51
72$60.12$82.92$117.04$162.64
73$63.93$88.01$124.65$172.82
74$67.78$93.16$132.36$183.11
75$72.41$99.53$141.62$195.85
76$78.25$106.87$153.29$210.54
77$83.51$113.64$163.81$224.08
78$88.44$119.86$173.67$236.51
79$93.41$126.23$183.62$249.25
80$98.43$132.65$193.66$262.11
81$106.21$143.00$209.22$282.79
82$113.96$153.54$224.71$303.88
83$121.31$163.41$239.41$323.62
84$128.55$173.28$253.90$343.36
85$135.90$183.15$268.60$363.10
86$174.17$220.83N/AN/A
87$186.67$242.50N/AN/A
88$198.33$264.17N/AN/A
89$210.83$285.83N/AN/A

 

Taking the first step when you’re ready to buy

When you’ve decided that yes, you want a life insurance plan for your parents, it begs the question:

Where should I start; what do I do now?

 

Start by talking with them first.

Clarify if they are on board with doing the policy. As mentioned earlier, you must have their consent. There are no exceptions to this rule (even if you have POA).

Also, get as much info as you can about their health. The more, the better.

With those two tasks completed, then you need to find an independent life insurance broker.

As you can imagine, we highly recommend Choice Mutual. Check out what our customers say about working with us, or read some of the reviews below.

 


Whether you go with us or not, make sure you find a reputable independent agency with access to dozens of life insurance companies.

Tell them your goals and give them all the information you can regarding your parent’s health.

Their job will then be to compare offers from the dozens of life insurance companies they represent to see which one is best for you and your parents.

At that point, they’ll assist you guys in applying to the carrier of your choice.

 

Frequently asked questions

Here are some of the most frequently asked questions we get about buying life insurance for a parent.  

 

Can I buy a policy for my parents?

Yes, you can. It’s pretty common for kids to purchase coverage on their mom or dad. Even if your parents have a policy now, you still take out another one on them.

 

Can I take out a policy on my grandparents?

You absolutely can! Every day we help grandchildren secure life insurance for their grandparents.

 

Do I need their consent to buy life coverage for my parents?

Yes, you most certainly do. There is no scenario where you buy life insurance on any adult without their consent. This rule applies even if you have power of attorney over them.

You simply cannot get around this rule. Unfortunately, even if you are the one who is paying for the coverage, there is nothing you can do if your parents don’t want to do it.

 

What is insurable interest?

Insurable interest refers to whether or not the policy’s beneficiary would be financially impacted in some way by the passing of the insured.

For example, you have an insurable interest in your parents because you would be responsible for their final expenses if they died.

To further put this into perspective, you couldn’t buy life insurance for your coworker. Why may you ask? Well, you would not experience a financial loss due to their passing.

Here’s the bottom line.

You merely being the child/grandchild of your parents/grandparents satisfies the insurable interest requirement 99% of the time.

 

What is the difference between the owner and beneficiary?

The beneficiary of a life insurance policy is the one who will receive the proceeds of the policy upon the passing of the insured.

The owner of a policy is merely the person or entity that is in control of the policy. Only they can make changes to the face amount, beneficiaries, or any other policy aspect.

For example, let’s say you buy a life policy on your mom or dad. You would be the owner and beneficiary. They would simply be the insured.

If they called the insurance company, they would not talk to your parents because they are not the owner. The insurance company would only be willing to talk to you since you’re the owner.

 

Can I name more than one beneficiary?

Yes, you can! You can have as many beneficiaries as you want. Furthermore, you can also name as many backup (contingent) beneficiaries as you’d like.

Contingent beneficiaries would only receive money if all primary beneficiaries were not alive when the insured passed away.

 

I have life insurance through the military. Can I add my parents to it?

Life insurance through the FEGLI program is not our area of expertise. Here are is a good post that may help answer your question. Life insurance from the VA is very different from coverage through private insurance companies.