10 Important Tips to Buying Life Insurance for Your Parents In 2020

10 Important Tips to Buying Life Insurance for Your Parents In 2020

If you are planning on purchasing life insurance for parents and are unsure of what and where to start with, you have come to the right place. This guide will be answering any questions you may have regarding life insurance for parents. 

Should I get my parents life insurance?

If you are confused about getting life insurance for parents, ask yourself this one question. Will I need to pay for any expenses that are a result of my parents’ death?

If the answer is yes, then you should absolutely get a life insurance policy for them. If no, you might not need to get one. If your parents do not have a plan for their final expenses, get them an insurance policy, otherwise you will have to deal with those expenses. The most common purpose of life insurance policies is to pay for these final expenses that may include medical bills, funeral and burial costs, debts, etc.

How much coverage will my parents need?

The purpose of life insurance for parents is to cover for any financial loss that may occur when your parents pass away. Keep these expenses in mind to estimate the amount of coverage you will need.

When estimating coverage, don’t forget these expenses.

Funeral and burial costs

The National Funeral Directors Association estimates the average burial cost in the United States to be between $8,000 and $10,000. In contrast, cremation costs between $2,000 and $4,000. Purchase coverage based on whatever option your parents prefer.

Debts

Get an estimate of any debts your parents may owe and purchase coverage based on that. It is a good idea to get a little extra to cover for expenses like interest.

Hospital Bills

Like debts, add up any unpaid hospital bills and get coverage based on that.

How do I start with buying insurance?

The process is simple. Ask your parents first, you need their consent to proceed, even if you have power of attorney. Once they agree, get their health history. You need that to decide what kind of policy you might need. The next step is to find a provider, inform them of your goals and your parents’ health condition. Based on the information you provide them, they will suggest suitable policies. Once you decide what policy to go for, you will have to fill out an application form.

You have the following options for filling out the application.

Paper Application

Paper applications involve the insurance provider filling out the application form with all your details and mailing you the application. You sign the application and submit it for underwriting. You will have to wait between 1 and 5 business days for their decision.

Email Application

Once the application is filled with all your details, the provider will email it you and your parents to sign it. You can easily sign it by clicking a few buttons. Once both of you sign it, it will be submitted for underwriting. You will have to wait between 1 and 5 business days for their decision.  

Voice Application

Your insurance provider fills out the application by conducting a phone interview. Once they fill out the application, they sign it using your voice.

Life Insurance Quotes for Final Expense

You can consider a final expense insurance policy if your aim is to pay your parents’ end of life expenses. The table below shows the rates for final expense insurance.

When going through the list, keep the following in mind.

·         These rates will stay the same during your life and the policy will never expire as expense insurance is a type of whole life insurance.

·         Your location will affect these prices.

·         If your parents smoke, be prepared for higher premiums as these rates are for non-tobacco users.

·         Your parents’ health will affect the premium prices.

·         If you are in Montana, you will pay the same amount for your mother and father. The state’s law requires that both men and women pay the same rate for insurance.

Life Insurance Quotes for Final Expense

10 Tips for buying life insurance for your parents

When purchasing life insurance for parents, keep in mind these 10 tips.

1.   Select the right policy

Life insurance has many different types, which one you choose depends on your goals and purpose. The two main categories of life insurance are whole life insurance and term life insurance. A whole life insurance policy protects you as long as you live, provided you pay your premiums. It will never expire and the premium rates remain constant. It also has the advantage of cash value. Term life, on the other hand, protects you for as long as the policy dictates which is usually between 5 and 30 years. It does not build any cash value.  

2.   Avoid taxes

A life insurance policy is made up of the following three points:

  • Owner

This is the person who controls the policy and pays the premiums

  • Insured

This is the person the policy insures

  • Beneficiary

This is the person who receives the death benefit on the death of the insured

In order to avoid taxes, ensure that two of these points are the same person. If all three points are different people, the death benefit will be taxed. For example, you want to get you mother an insurance policy, and you name your son the beneficiary. When your mother passes away, the death benefit goes to your son. To the IRS, the death benefit will be a gift from you to your son, similar to if you gave your son a $20,000 check. This situation is referred to as the Goodman Triangle or the Unholy Trinity. In case the death benefit counts as a taxable gift, the owner of the policy pays the tax, not the beneficiary.

The IRS allows you to gift a certain amount to someone without it being taxed. For example, this threshold was $15,000 in 2018. So as long as the death benefit is below the threshold you don’t have to worry about the three points.

You also have the choice of buying life insurance for your parents and not being the owner. You can list your parents as owners and you can be a payer.

3.   Work with independent agents

Though you can purchase insurance policies directly from the insurance company, you can also purchase them through insurance agents. Insurance agents are representatives of different life insurance companies. Their job is to help you find the right insurance policy for you based on your needs and budget. They receive a commission from the insurance company for every policy they sell. Insurance agents are of two types.

Captive Agents

Captive agents only represent one insurance company.

Independent Agents

Independent agents represent multiple insurance companies.

It is a good idea to work with independent agents. They offer you insurance policies from different companies. You can compare the different policies and purchase the one that meets your requirements.

This is a huge advantage because you can’t find the right policy with just one company. Different companies have different underwriting processes and respond to medical issues differently. So if your parents have any health issues, like diabetes or heart problems, inform your agent so they can match you with the right policy.

4.   Gather as much information as you can on your parents health

Your parents’ health is one of the main factors that will determine their eligibility for an insurance policy, the cost of their premiums and which policy is right for them. It is  therefore vital that you are familiar with their heath history and inform your agent accordingly.

Here is what can help you in gathering their health history:

  • Any prescription medicine they have used or are using
  • Any conditions they may have been diagnosed with, e.g. high blood pressure, diabetes, etc.
  • Any major health events, like a stroke or heart attack or hospitalization
  • Weight and height
  • Drinking or smoking habits

The more information you have, the better. In case you can’t obtain the information mentioned above, be sure to get the list of medicines your parents have used. Your agent will be able to figure out if they have had any major health issues based on that.

5.   You don’t need to be physically with them to apply for a policy

It was a requirement in the past that both you and your parents be at the same place at the same time to purchase a life insurance policy. But that’s not how it works now. You could be in separate locations and still be able to purchase a policy. Most insurance companies have online application processes.

If you opt for purchasing life insurance for parents remotely, you have two options.

  • Email Signature

With email signatures, the insurance provider sends out an email to both you and to your parents. You can sign this email by clicking a few buttons. The insurance provider determines your parents’ eligibility and gets back to you in a couple of days.

  • Voice Signature

With voice signatures, you can purchase a policy over the phone. The insurance provider gets all your information over a phone call. At the end, they sign the application with your voice. This represents your consent and is similar to if you had signed the application in ink. Most of these calls last around 20 minutes and the provider informs you of your eligibility by the end of the call.

6.   Budget

You may be tempted to buy your parents more coverage even though you may not be able to afford it. This is a bad decision and a complete waste of money. There is no point in purchasing an expensive life insurance policy only to drop it a few months later because you can’t afford it. You could opt for less coverage at the beginning and then buy more if you think the original is not enough. Having less coverage is better than no coverage at all.

7.   Your parents’ consent

The insured’s consent is necessary for purchasing an insurance policy. You cannot purchase a policy without their consent, even if you have power of attorney. This rule applies regardless of the insurance procedures.

But if you’re the one paying, why does consent matter? You need your parents’ signatures and health history for the application. Having their consent will make the  process easier for you.

8.   Avoid guaranteed life insurance policies

Guaranteed life insurance is a type of life insurance that offers instant coverage and does not require any health questions or medical exams. It’s only requirements are that the insured person have the mental capacity to sign a legal contract and they live in a state where guaranteed life insurance is allowed.

Why is it a bad idea? It sounds like a good deal. Not really, it comes with higher premiums and a 2 year waiting period. The higher premiums are because the insurance company asked no health questions, thus is taking on greater risk insuring you. The two year waiting period means if you pass away within the first two years of the policy, the beneficiary receives only the premiums and a little interest. Unless the insured passes away two years after the policy, the beneficiary will not receive the full death benefit.

9.   Choose your insurance company wisely

Most people think purchasing the policy from a well-known company is a good decision. It’s not! Not all companies invest in mass scale advertising become household names. Do your research and go for the company that best meets your requirements and budget. Even if you have never heard of the company before, and it meets your requirement, purchase from it.

10. Don’t delay it

Buy now! Don’t delay it. Buying insurance for parents now will save you money, get you coverage sooner and give you peace of mind. Delaying it will only cost you more, insurance premiums increase with age. With your busy life, it is very likely you may forget, delaying it further. If your parents are healthy today, they may not stay healthy in the future. If they develop certain health conditions you may have to pay higher premiums and in the worst case, your parents may not be eligible for an insurance policy at all.

Frequently asked questions on life insurance for parents.

  1. Can I buy a policy for my parents?
  2. Yes, you can. It is a very common practice.
  3. Do I need my parents’ consent?
  4. Yes, you do. Their consent is necessary even if you have power of attorney.  If your parents don’t allow it, there is nothing you can do, even though you want to pay for it.
  5. What is insurable interest?
  6. Insurable interest refers to whether the beneficiary of the policy will be financially impacted by the death of the insured. For example, a coworkers death won’t result in any financial loss for you, buy if your parents pass away, you will be responsible for their final expense.
  7. What is the difference between beneficiaries and owners?
  8. The beneficiary of the policy is the person who receives the death benefit when the insured passes away. Conversely, the owner is the person who controls the policy and pays for it. The owner decides different aspects of the policy, e.g. the death benefit.
  9. How many beneficiaries can I name?
  10. You can have as many beneficiaries as you want. You can even have backup beneficiaries. Backup beneficiaries only receive the death benefit if the primary beneficiaries have passed away at the time of the death of the insured.