Taking Out a Life Insurance Policy on Your Parents
The answer is yes, and Ethos is here to help you through the process. Our policies require the parent to be the initial policyholder, but the plan's owner can be changed later on to a child or responsible party.
While we often think of life insurance as something we purchase to benefit our spouse or children, purchasing online life insurance for parents may make sense for you financially. Let's look at some of the considerations you'll need to think about before getting life insurance for a parent.
Talk to your parents
Before helping your parent secure life insurance, discuss the plan with them and enlist their support. With Ethos' plans, the parent will need to file the application in their own name. However, it's sometimes possible to get coverage without their assistance if they have dementia or Alzheimer's disease.
Ethos Life's policies typically don't require your parents to have a medical exam; they'll only need to answer a few health questions on the application. You'll also want to discuss their financial commitments before determining how much coverage they'd need.
How much will your parents need?
Help your parents take stock of their financial situation, and consider your own as well, before you begin shopping for a policy. A life insurance policy for parents should cover several essential elements:
- Funeral costs: according to the National Funeral Directors Association, the median cost of a funeral is $7,848. Talk to your parents to find out what arrangements they'd prefer, so you have a general idea of costs well before they're needed.
- Outstanding debts: Are your parents paying off a mortgage or a car loan? Are there other debts that require regular payments? When you buy life insurance for parents, you'll want to consider these costs as well.
- Medical costs: If they face chronic illness or have existing health issues, estimate the costs that may outweigh them when buying a parent's life insurance.
Consider your parents' age
Can your parents get life insurance even if they're older? They can, although the type of policy they purchase may vary depending on age. Younger parents may be eligible for inexpensive term insurance. For parents aged 66-85, consider a policy such as Ethos Life's whole life insurance for seniors. These policies are available for a payout of up to $30,000 and feature a level premium — meaning that premiums won’t change — and guaranteed approval.
Choose the right type of insurance
When you're looking into life insurance for a parent, you'll need to decide what type of policy is best by comparing them. There are two general types of policies:
- Term insurance lasts for a specific term of years, usually between 10-30, and features a single payout if the insured dies before the term ends. It's generally the most inexpensive kind of life insurance policy. Still, you may not be able to help buy this type of life insurance for elderly parents — Ethos, like many companies, limits term policies to those under age 65.
- Permanent insurance: Whole life insurance is the best known type of permanent insurance. It lasts for the insured's life, as long as premiums are paid, and has two elements: a death benefit payout and a savings component that gradually builds up as you pay your premiums. Some policies let you borrow against these savings, which is called the policy's cash value. Note that because Ethos' whole life policies apply to seniors ages 66-85, the policies will not have time to accrue significant cash value.
Plan for tax consequences
Generally, life insurance benefits aren't taxable. However, there's one factor to be aware of when you're thinking, "Can I buy life insurance for my parents?" There are typically three people involved with a policy: the person paying the premiums, the person who receives the benefits, and the insured person. To avoid having to pay gift taxes, two of them should be the same person.
For example, when your parents take out life insurance, they can assign it to you as an owner. You then want to be both the beneficiary and the person paying the premiums. Conversely, your parents can retain ownership and be the people who are both insured and who pay the premiums.
Life insurance as an investment
What about using life insurance on parents as an investment? Your reason for purchasing a policy on your parents — such as paying for funeral costs — is called "insurable interest." This means you're purchasing a policy because the death of a loved one will have financial repercussions on you.
After your insured parent passes away, you're expected to use the death benefit to pay claims against their estate and for other debts that would otherwise pose a hardship for you. Although life insurance can indeed be a vital part of an overall financial strategy, it's not advised to use it for the primary savings vehicle — either for you or your parents.
How does Ethos work? It's easy to get a quote online, and you can even use the Ethos Coverage Calculator to help you determine how much insurance you'll need for your parents' policy. Although agents can answer your questions, you won't be bothered by over-eager salespeople wanting to sell you policies, though agents are available if you want to talk to someone. It's a fast, simple, and efficient way for your parents to purchase life insurance on their terms.