You may remember a time when your parents urged you — or even helped you — to purchase life insurance. It probably never occurred to you that later in life you might want to encourage your parents to purchase life insurance — for the expenses that may arise in their older years.
What?
A life insurance policy is designed to replace existing income and cover anticipated or unexpected expenses; new term life policies are accessible to those up to age 75.
How?
You may be surprised to learn that affordable life insurance policies can be customized for your parents’ unique situation.
Why?
Just as life insurance can be a safety net for children and a mortgage early in life, it can offer financial security later in life, particularly if your parents still have debt and don’t have retirement savings.
Let’s explore a few scenarios:
- Perhaps you cosigned a loan or a mortgage for your parents a while back. You know they don’t want to leave any debt should they pass away before repayment, but they’re worried. Life insurance can provide peace of mind for everyone, ensuring co-signed loans are paid off.
- Maybe you plan for your aging parent(s) to move into your home — multigenerational households are on the rise and can be enriching for everyone.* Should personal care be needed down the road, perhaps you’ll want the ability to take time away from work to help them. Or maybe you’ll turn to an in-home care service. Either way, care can be costly.† Thankfully, life insurance can help protect your parent(s), enabling them to receive the care they need without worrying about how they will cover the cost.
- More seriously, what if a parent develops a chronic, or terminal, illness? Unfortunately, such a diagnosis can sometimes be followed by a move to a nursing facility and ongoing medical bills. Again, life insurance can be a huge help; in fact, one type of additional coverage called an Accelerated Death Benefit can pay some of the financial benefit while your parent is still living.
To cope with any of these scenarios — or others, including paying for funeral expenses (the average cost of a funeral is nearly $8,000‡) — it’s a good idea to consider getting coverage for your parents should they not already have life insurance.
Taking the first step toward a life insurance policy for your parents
Before getting insurance, we recommend having a heart-to-heart with your parents about their needs and any current insurance coverage they might have. To break the ice, you might want to introduce one of the above scenarios or one that relates more specifically to their situation. Your folks may assume they’re beyond needing life insurance or that they might not qualify, but getting a quick quote online can help put those concerns into perspective.
While most could never repay all that your parents have done for you over the years, you could offer to pay the monthly premiums. If they agree, you may serve as both owner and beneficiary of the policy. Alternatively, your parents could name the beneficiary, perhaps one or more grandchildren, or a favorite nonprofit. Either way, consider how this generous gesture could offer them peace of mind — and save you or your family future financial strain.
Choosing the best policy
When your parents are ready to apply for life insurance, they’ll need to provide important details about their personal and medical histories. But first, they’ll need to select the type of insurance that best fits their needs.
Term Life Insurance
Term life insurance, the most affordable option, lasts 10 to 40 years, which makes it perfect for aging parents’ needs. If your parents are over 50 but under 75, they can still secure coverage, some of it lasting until they blow out the candles on their 90th birthday cakes. (That’ll take some lung power!) Should they pass away while the policy is active, the benefit will go to your parents’ beneficiary.
In addition, should your insured parent be diagnosed with a terminal illness, they’ll be covered by something called an accelerated death benefit (ADB) — included at no additional charge by LGA — for up to 75% of the term policy’s death benefit or $500,000, whichever is less, to cover large medical expenses. Finally, you can customize your parents’ insurance with term riders, or temporary coverage supplements to their main policy.
Universal Life Insurance
If your parents’ health conditions make it hard for them to qualify for term life, universal life insurance may be a good alternative. While more expensive, a universal policy remains in full force until the insured parent passes away; it also features level premiums to ensure they’re protected, regardless of future economic conditions. Additionally, universal life allows seniors to design a premium payment plan and consolidate payments over 15 or 20 years. Whether you or your parents pay, prepaying the universal life policy enables them to enjoy guaranteed lifetime coverage and gain peace of mind throughout the rest of their lives.
Additionally, with universal life, your parents can pass on a tax-free inheritance, as long as their estate doesn’t exceed $11.7 million. A financial adviser can ensure the selected policy pays a tax-free death benefit (many cases may not be tax-free so important to understand that upfront!). What’s most important is being candid about who will receive the money and making sure Grandma and Grandpa list the correct names as policy beneficiaries.
Whole Life Insurance
Finally, whole life insurance, another type of permanent insurance, also covers the insured through the end of life — as long as premiums are paid on time. Whole life also offers what’s called “cash value” — in other words, the insured can build up savings that can be withdrawn as a loan. Unfortunately, this can take a good deal of time, and whole life tends to be expensive. (Legal & General America does not offer whole life policies.)
- *According to Generations United 2021 report.
- †According to Genworth's latest Cost of Care survey.
- ‡According to the National Funeral Directors Association, 2021