Yes, you can, and even be the owner of the policy. In this article, we’ll explain the hidden tricks of how you can do so, dealing with the question of whether your parents can provide for themselves as they keep getting older or not.
We’ll also cover:
Who should buy parental insurance and why
The 1 thing you need to buy single parent health insurance
What type of life insurance fits best for your parents
The Goodman Triangle (don’t miss it if you want to avoid taxes - legally)
Each section is written straight to the point. We’ve included some resources in between to leave every idea crystal clear.
Who Should Buy Parental Life Insurance?
Basically, anyone who wants to protect their lovely parents and him/herself at the same time. It’s a double shield. Beyond giving parents security and confidence, you’re financially protecting yourself against future financial obligations.
Whether you’re seeking life insurance for young parents or for parents over 50 or 60, you need one thing to be approved.
The 1 Thing You Need to Get Life Insurance For Your Parents (Or Anyone)
Insurable interest - Proof that you stand to suffer some kind of financial loss when your parents pass away.
Why is this necessary? Because it prevents people from buying life insurance for others whom they know are expected to pass away soon. Imagine if insurable interest wasn’t needed at all… there would be plenty of billionaires and insurance companies would go bankrupt.
Don’t worry, there’s absolutely no problem with this. Whether you’ll be inheriting your parents’ debt or paying for their burial costs, you can easily prove you’d be financially weakened if they were gone.
However, take note:
It’s hard to prove insurable interest if you’re an adult buying insurance for your parents. We recommend you better help them own their life insurance and list you as the beneficiary.
You can’t apply for life insurance on another person without his or her consent.
If you still want to be the owner of your parent’s policy, then be careful not aiming for neither too much nor too little coverage as it might result suspicious. Too much evokes red flags and too little won’t help you deal with your financial obligations.
Why Life Insurance For My Parents?
There are plenty of reasons why you might want life insurance for your parents. Here are the top 7...
Funeral expenses - We all know burial costs can easily extend to 5 figures. Why risking the burden when life insurance can cover it completely?
Healthcare - Keep protecting your parents from colossal health costs.
Debt - Protect yourself against any debt you’re possibly inherited.
Replacement Income - If part of you depends on your parents’ capital, don’t think it twice.
Taxes - Cover any type of tax you might inherit
Legacy - A little cushion from your parents to pass their savings, properties, and assets to their beneficiaries.
Donations - Any donation or good social input you or your parents would like to make… tax-deferred.
How To Buy Life Insurance For Your Parents
Just as for yourself. It requires the same process, which you can find here. However, remember you must have their consent, insurable interest, an amount of coverage established and the type of insurance you’d like to buy.
You could be both the owner and the beneficiary of the policy, no problem with that. In fact, it’s better… but we’ll get to that.
About the medical exam, yes it’s required for most cases. And yes you can get insurance for your parents even if they’re in poor health, just expect to pay a little bit more.
What Type of Policy Fits Best For Them?
The easiest policy to get is the “final expense” which is basically burial insurance, yet it’s quite expensive. Actually, most people end up paying more for the policy than the death benefit they receive, merely due to the risk the elderly present for insurers.
You’re better off with term, life, or whole life policies. Each one has unique characteristics that might satisfy your needs. To know more about them, here’s a complete guide of the different types of life insurance.
The Goodman Triangle
You might be wondering what the heck is this…
Well, let us quickly explain. An insurance policy has three roles:
The Owner - The person who owns the policy.
The Insured - Who is being covered by the policy.
The Beneficiary - Who will receive the death benefit.
When these are 3 different persons, the owner of the policy might have to pay estate taxes for the death benefit.
Let’ say Matthew is the owner of an insurance policy covering his mom, and Matthew’s brother (Mike) is the beneficiary. If Matthew’s mom passes away, Mike would receive the death benefit. But, the owner of the policy (Matthew) would have to pay estate taxes (45-55% of the death benefit).
It’s off a lot of money… we’re talking about hundreds of thousands of dollars you could save.
Another scenario is when there’s more than one beneficiary for a policy, where you might also have to pay taxes because the death benefit is given just to one beneficiary. Then this person “gifts” the other half to the other beneficiary, so you have to pay taxes for that transaction too.
It sounds quite complicated, but there’s a solution for this. Actually, we’ll give you 3...
List one beneficiary - but you won’t able to share the death benefit with someone else.
List all beneficiaries as owners of the policy - an easy move that will save you thousands of dollars.
Irrevocable life insurance trust - A non-amendable trust (no changes at all) where the insured is not the owner or the beneficiary of the policy. It’s quite a complex topic, but you can learn more about irrevocable trusts here.
Now you’re aware of why parental insurance is a good option and how to prevent the “Goodman Triangle”. Remember you can always come back here and reread all the content we’ve published for you.
If you still have any questions or doubts, contact our support team at: firstname.lastname@example.org