I guess the first question that came to your mind when you saw the topic was “is it legal”. Well, the answer is yes. It’s completely legal and okay to buy life insurance for your parents. One of the ways you can benefit from buying life insurance on your parents is that in the event that any of them passes on, the financial burden on you and your siblings would be significantly reduced.
When a parent dies, it’s sad enough to deal with the emotional trauma. Adding financial burden to it doesn’t sound appealing. Life insurance on your parents can help to eliminate financial burden on funeral costs, unpaid debts or even medical costs when they pass on.
Apart from death, when your parents get old and are unable to support themselves financially, they start to rely on you for financial assistance. This increases your financial burden especially when you have your own kids and debts to take care of. Buying life insurance on your parents is a way to ensure that such costs are taken care of in the future without becoming a burden to you.
However, before you buy life insurance on your parents, you have to know what exactly you are doing. You have to be well informed, especially if you are buying online. There are two major types of life insurance policies:
- Term Life Insurance Policy-: Term life insurance policy provides coverage and death benefits for the policy holder for a specific period of time.
- Permanent Life Insurance Policy-: Permanent life insurance builds up a cash value as well as death benefits. Mostly, it covers the policy holder throughout his/her lifetime. There are different types of permanent life insurance policies including whole life insurance, variable life insurance and universal life insurance.
There are some things you have to carefully consider before you buy life insurance on your parents. Some of these things include;
5 Factors to Consider When Buying Life Insurance for your Parents
Table of Content
a. Insurable interest
In insurance, before you can insure anything, you have to prove the concept of insurable interest. This means proving that the item being insured is of value to the policy holder such that the absence or damage to that thing would affect the policyholder. You have to be able to prove that you would suffer a loss as a result of the demise of your parents.
In insurance, you can’t insure something that has no value to you. Therefore, you must be able to prove that your parents death would cause a gap in your life; it could be a financial gap, psychological gap or even emotional gap but the physical gap proof flies more. Why is this important to the insurance company you ask? Well, this is important, so as to prevent people from buying life insurance on their parents as a money making scheme.
b. Amount of Coverage to buy
You need to figure out how much is too much and how much is just right. Buying life insurance on your parents is kind of tricky because there is a limit to what you can buy. Your aged parents are probably living on their retirement income with very few debts, so it would be suspicious to decide to buy a million-dollar life insurance on them.
To determine just how much to buy; you must figure out how much assets they have, their debts, future medical and funeral expenses and other expenses. This would give you an idea of how much insurance to buy and you would also be able to defend the amount to the insurance company.
Also, you have to figure out just how much it would cost you. Remember that you would have to pay premiums. If you are just acting as an intermediary and your parents would be the one to pay the premiums, ensure that you find out just how much they can afford. The same thing applies if you would be the one to pay for it. Term life insurance premiums are usually cheaper than whole life; you can get an annual premium rate of $3,000 for a $500,000 policy for 20 years.
Remember that you cannot buy life insurance on your parents without their consent. They must be aware and also sign the policy agreement.
e. Goodman Triangle
Your insurance agent may not tell you this but it is a very important thing that you must know before you buy insurance on your parents. When you buy insurance policy on your parents and you are not the only beneficiary; you probably have yourself and your siblings as beneficiaries, the benefits you get from the policy is taxable but if you are the sole beneficiary, it isn’t. This is why it is extremely important to structure the policy properly.
To buy insurance policy for your parents online, you should do the following-:
How to Buy Life Insurance Online for Your Parents
1. Review existing policies
First, you have to take a look at the life insurance policy they already have to determine if it is sufficient or if they need more.
2. Consider income
Next, you have to look at their monthly income or yours if you would be the one paying the premiums. You need to figure out just how much premiums you can afford.
3. Ask for Quotes online
You may use an agent and you may decide not to. It’s all up to you. If you are buying online, you don’t necessarily need an agent to get quotes, just go on the website, fill out required information and receive quotes in your inbox.
4. Compare Quotes
You can use websites like GoCompare to compare quotes electronically. There are also several other online tools that could be used to compare quotes.
5. Conduct your research
If you have found a suitable quote, don’t buy the policy just yet. Try to find out details about the insurance company like its financial strength and reserves, length of period it has been in business, reviews from other clients and all other information that would help you to form an impression about the insurance company.
When you have done all of the above, you are set to buy your insurance policy. Just buy and then start paying your premiums.