Life insurance for parents is something that we find many children investigating. Unfortunately, nearly half begin investigating after the parents suffer a significant medical issue. By this time, it is far more expensive to purchase.
There are three primary reasons why you should buy life insurance for your parents:
1) Cover Final Expenses
Children purchase life insurance for parents to provide for their final expenses. It is about $85 per month for a healthy 65 year-old male non-smoker to purchase $25,000 of permanent life insurance. In many cases this is a far better way to cover final costs than to come up with $25,000 in a pinch. In fact, a husband and wife could get policies for $10,000 each for less than $65 per month. This is usually affordable either for the parents or children to pay.
2) Leave a Legacy for Grandchildren
A second reason to purchase life insurance for parents is to provide a legacy for grandchildren. $15,000 to $25,000 can provide a great base for their education or a start for a down payment on a home. Both of my children used a gift from their grandparents to finance their first homes. Perhaps the parents have not even thought of this. Some grandparents have set up more sophisticated insurance plans with the children as the insured. This keeps the cost of insurance cheap and they can accumulate cash in the policy that can be accessed for education or down payments later on.
3) Estate Tax Purposes
A final reason is for estate tax purposes. Many seniors have more cash flow than they require. In these cases, the money typically goes into a savings account and attracts the highest taxes. A good strategy is to encourage parents to purchase an affordable joint “last to die” life insurance policy for the excess cash. From that point on, there are no taxes on the growth and the cash, plus the value of the life insurance goes to the beneficiaries with no taxes or probate fees.
Having a conversation with parents about life insurance can be difficult, particularly if the reasons are not clear in your mind. Talk to a life insurance broker first to gain insight and a well-suited strategy.