If your parents don’t have an insurance policy or the funds to pay their own way in their later years, you can buy life insurance for your parents yourself, assuming they’re on board and can qualify for coverage.
Supporting your aging parents up until and including their death can be a financial burden, and life insurance is one way to potentially recoup some of the money you’ve spent on their care, or to help pay for final arrangements like a funeral. Some policies allow you to use the benefits before their death under certain circumstances.
You’ll need to work with your parents to find the right coverage for their situation.
The benefits of buying life insurance for your parents
An AARP survey published in January 2020 found that 42% of adults 40 to 64 years old expect to provide regular financial support to their parents. Many are part of “the sandwich generation,” buying groceries or paying rent for their parents while also raising their own kids or covering expenses for their adult children.
Though it’s less cost-effective than diligently saving for retirement, in some cases life insurance can help offset the costs of your parents getting older, according to Ryan Pinney, president of life insurance brokerage Pinney Insurance. If you started saving for your parents’ end-of-life expenses today with a savings account or the stock market, it could take decades to accrue the same amount of money you’d get from a life insurance payout.
“Life insurance allows you to basically multiply your money nearly immediately as an asset or a pool to take care of long-term expenses,” Pinney says. “This really provides the leverage to help out in a short period of time to take care of Mom or Dad.”
There are other reasons to explore a life insurance policy for your parents besides making up for lost time. You might lose income if you have to take off work to care for them. You might want to avoid selling their house to repay their mortgage debt. Or your finances may be intertwined with a co-signed loan.
Essentially, if you expect to be financially harmed by the costs your parents rack up toward the end of their lives, it’s worth looking into life insurance for them. Even if they already have a policy, you can get another one to help supplement their financial needs as they age, and use it to pay for expenses after they die.
Working together to buy life insurance
Buying your parents life insurance isn’t like getting them a surprise birthday gift. To take out a policy on someone’s life, you need their consent.
This means your parents will have to agree to become insured. They may have to take a life insurance medical exam as part of the process as well.
The cost of their policy isn’t affected by who pays the premiums. But you can shop around online to compare life insurance quotes and get the best deal.
What type of policy is best?
When you and your parents realize they need life insurance, get moving on finding the right type of life insurance right away, advises Andrew Doerman, vice president of digital distribution and strategy at Legal & General America.
“The younger and more healthy you are, the cheaper your rates will be,” Doerman says. “And we see a lot of cognitive decline with elderly parents over time, and a lot of companies will not issue policies if there’s dementia or Alzheimer’s.”
To simply cover funeral arrangements, you can go with burial insurance, a life insurance policy with a small death benefit that beneficiaries can use as needed. You can also buy funeral insurance, which sends payment directly to a funeral home for prearranged services.
Term life insurance can be a good choice if your parents need coverage only for specific years, such as the duration of a mortgage. Keep in mind that if a term life policy expires before your parent dies, no one receives a death benefit.
Permanent life insurance doesn’t expire, and also has cash value if you need to pull money out of the policy before your parents die to help cover bills — but premiums are typically much higher than for a term life plan. Plus, that cash value needs many years to accrue, so if you haven’t had the policy for long, the cash value is negligible.
Using accelerated death benefits
When shopping for life insurance for your parents, ask whether the plans offer accelerated death benefits. These benefits, which may cost extra, can sometimes help cover the costs of terminal illness, a life-threatening diagnosis or long-term care.
In essence, your parents can receive a tax-free advance of a portion of the death benefit in case of emergency, so you don’t have to dip into other assets to pay those costs.
Keep in mind that using accelerated death benefits will reduce the payout when your parents die. But if you’re buying life insurance for aging parents, you may be glad to have the option to use some of the funds early rather than paying out of pocket.
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Eric Goldschein writes for NerdWallet. Email: firstname.lastname@example.org.