|Term Life Insurance||Whole Life Insurance||Final Expense Insurance||Universal Life Insurance||Index Universal Life Insurance||Variable Life Insurance|
|Premiums||Level for period of policy or increases every year||Level for the life of the policy||Level for the life of the policy||Flexible based on the needs of the customer||Level for the life of the policy||Level for the life of the policy|
|Cash Value||Builds based on premiums paid in and paid up additions||Builds based on premiums paid in||Yes, can be used to pay premiums (not advised)||Yes, through sub-accounts attached to market indexes||Through sub-account from insurance company's investment pool|
|Investment Vehicle Attached?||No, unless it is a variable policy||Technically no, but sub account attached to market index|
|Guaranteed Death Benefit|
|Notes||Most affordable and provides the best value, dollar for dollar||Best used for estate planning purposes for wealthier individuals or older members of the population||Provides low amount of death benefits to help offset medical and funeral expenses||May become temporarily underfunded and may require additional cash deposits||Earns larger returns to build cash value with a safety net to cushion falls||For those wishing to maximize long-term returns and willing to take losses|
Let’s focus on the seven essential facts you need to know about purchasing life insurance for your parents.
In order to purchase life insurance on a parent, or on anyone for that matter, you must have consent.* It’s always necessary for your parent to agree to the life insurance policy. Think of consent as a way for life insurance carriers to protect against bad intentions someone might have.
Just search online for, “foul play for life insurance” and you’ll see plenty of examples as to why consent is crucial. Dark, I know, but we are all aware that not everyone has good intentions.
*Note – an exception to this rule is if a parent is purchasing a life insurance policy on a minor child.
Every state in the U.S. has insurable interest laws to protect the integrity of life insurance policies.
These generally state that the only people who can take out or hold an insurance policy on the life of another person are blood or legal relatives or those with a financial interest in the survival of the policy’s subject. – Asher Hawkes, Forbes contributor
Here’s an example: Your mom is 72 and lives off her income from a small pension and social security. She provides full-time childcare for your children. She doesn’t have a large amount of debt, but has not saved up for funeral expenses or future medical bills that may occur. Purchasing a modest policy (around $200,000) would likely make sense and would demonstrate an insurable interest.
Deciding on an amount of life insurance to purchase for your parent requires you to consider some important factors:
Let’s consider some examples of appropriate life insurance amounts:
The person (or sometimes entity) that hold the rights to the life insurance contract. Ownership is important because he or she can make changes to the life insurance policy, such as:
Important – while ownership of a policy may change, the insured may not change.
If the owner of the policy is also the insured, life insurance carriers will not ask clarifying questions. If you are merely assisting your parent in securing life insurance, and they will own and make payments for the policy, this is a straightforward situation without the need for further considerations.
On the other hand, if you will be the owner of your parent’s life insurance policy, life insurance carriers will require you to provide proof of insurable interest.
The payor of a life insurance policy is who will be making the premium payments. The payor owns the contract and is often the insured of the life insurance policy. However, that’s not always the case. If you are purchasing a policy for a parent, for example, you are the payor and your parent is the insured.
The beneficiary is the person(s), organization, school, church, or business receiving the death benefit from the life insurance policy. Beneficiaries are usually loved ones who would experience a financial burden if the insured passed away. But really, the sky’s the limit when choosing a life insurance beneficiary. In fact, your parent could list their beloved dog as a beneficiary if they wanted to.
Often, the life insurance beneficiary is:
When your parent is considering who to list as a beneficiary, these questions help:
Life insurance comes in all sorts of types and sizes.
Let’s look at the five most common types of life insurance policies that children purchase for their parents: