Why Is Life Insurance For Parents Important?
Housing. Transportation. Clothing. Groceries. Medical care. You want to make sure your family has all these necessities. However, there may be one item you're overlooking: your own life insurance, which provides an immediate payout upon your death to the beneficiaries you have named.
8 reasons why parents need life insurance coverage
As a parent, you want to support your children. Whether they're school-age children or young adults, you don't want to burden them financially when you die. Here are eight reasons parents should consider a life insurance policy for themselves.
1. Provide your loved ones with financial security
Even if you're not the primary breadwinner of your household, you're likely a contributor. Caring for children, cooking meals and keeping the house in order are also big jobs. If you're not there to manage the household, your family may require outside help. Your beneficiaries can use some of the benefits from life insurance for stay-at-home parents to get the household assistance they will need.
Your family may also use the life insurance benefits for major investments, like paying off the mortgage or sending children to college.
2. Clear debts and other financial obligations
Are you carrying student loans or credit card debts? If so, following your death, the court may use your assets to pay off obligations before the remainder goes to your heirs. You can ensure your estate doesn't end up in a lengthy probate process by purchasing enough life insurance to cover your debts when you die. That way, your beneficiaries can close your accounts without much hassle.
3. Replace lost income
Families that lose a parent's financial support after a death may find themselves lacking a regular income stream. That's especially true for children of single parents or sole breadwinners.
Life insurance for single parents can replace a breadwinner's income and ensure survivors have money to rely on. While young children can't receive the money directly, relatives who care for them can use it to ensure their needs are met.
4. Cover funeral expenses
According to the National Funeral Directors Association, the median cost of holding a funeral was $7,848 in 2021. However, expenses can be much higher, depending on the type of service your family has and where they hold it. If you die without assets to pay for your funeral, your survivors will need to pick up the tab, which can be burdensome, especially if they don't have much in savings.
When you purchase funeral insurance, your beneficiaries can use some of the life insurance payout for your burial. You won't leave them scrambling to come up with the money for a funeral.
5. Help your family maintain their lifestyle
Take an honest look at your family's monthly expenses. Do your children attend private school? Are you paying your teenager's monthly car payment? Does your family enjoy eating out a few times a month? All these costs add up. While you may be able to comfortably afford them now, if you die, your family may need to make some significant lifestyle shifts.
Life insurance policies for parents can provide a financial buffer to maintain your family's lifestyle if they lose your income. They can use the benefits to pay for the extras they've come to expect, even if they no longer have your income to count on.
6. Plan your estate
If you have assets such as a house, jewelry or vacation rental you plan to leave your survivors when you die, your estate will likely incur taxes. Depending on the value of your assets, estate taxes may be quite extensive, requiring your beneficiaries to settle them before they receive the assets you want them to have.
You can purchase a life insurance plan to cover estate taxes as part of your estate planning strategy. That way, your heirs won't need to come up with money for estate taxes out of their own pockets. Instead, they can use the death benefits from your life insurance coverage.
7. Protect and properly distribute your assets
You likely have a plan for distributing your assets to your survivors. A formal document, like a will, outlines your assets and who you intend to inherit them. Individuals with more complex circumstances may opt for other estate planning options, such as a trust.
One creative alternative to a will is an irrevocable life insurance trust (ILIT). In an ILIT, you purchase a life insurance policy and formally place it within the trust. You'll designate beneficiaries to the trust, who will receive the contents — including the death benefits from your life insurance policy — when you die. If the ILIT is set up to your beneficiaries' advantage, there won't be any estate taxes on your life insurance coverage proceeds.
8. Give your family peace of mind
There is no avoiding death. At some point you will die, and your survivors will need to go on without you. While that is a sobering prospect, they don't have to be left destitute. A solid parent life insurance policy can give your family peace of mind, freeing them from worry about their future financial security.
There are various types of life insurance you can purchase. Whole life insurance for parents offers a minimum cash value and lasts throughout your entire lifetime. With this type of insurance, you don't need to worry about future premium increases. They'll remain the same, even in your older years.
Term life insurance for parents is another option. A term life insurance policy gives you coverage for a set period. If you die within that time, your beneficiaries will receive a death benefit they can use for any purpose. However, once your coverage ends, you'll need to purchase a new policy if you want to retain your coverage.
Can you get life insurance on your parents?
Yes, you can — with a few caveats.
Life insurance for elderly parents does exist. If your parents are growing older and you worry about the costs of their future medical care or how losing them will impact you financially, purchasing life insurance for them might be a good idea. If they don't currently have life insurance coverage, talk with them about your concerns. They may be willing to purchase life insurance coverage themselves if they understand your worries.
However, you can also purchase your own life insurance policy on your parents if you receive their consent. To provide consent, your parents must be mentally competent. They must understand why you're purchasing the policy and be able to sign the paperwork. You'll also need an insurable interest in their livelihood, which means their death will financially impact you in some way. For instance, you may be currently supporting them or paying for their long-term care.
How to get life insurance for a parent
If you're ready to buy life insurance for a parent, start by determining what type of plan you want and how much coverage is appropriate. You should seek your parent's input on the policy, too. They may have additional financial concerns you're unaware of, such as debts or a few remaining years to pay off a mortgage.
You can shop around with different life insurance companies until you find a policy that suits your needs and aligns with your budget. Ask for life insurance quotes for parents, and explain what you need coverage for. Life insurance agents can help you select the type of policy that's best for your circumstances and how much life insurance you need.
Once you decide on a plan, apply and make sure your parents complete the necessary paperwork to consent to the policy. If you receive approval, you can designate yourself as the beneficiary or appoint multiple recipients.
Summary of Money's why is life insurance for parents important
Whether you're a parent yourself or you're concerned about the financial obligations of caring for an older parent, a life insurance policy can bring peace of mind. Beneficiaries of life insurance proceeds can use the money to pay funeral costs, support their current lifestyle or replace lost income. The policyholder can feel secure knowing their children and loved ones won't face severe financial hardship once they die.
If you're new to life insurance, a good place to start is by reading about life insurance for beginners and information on how to find the best life insurance policies. A little research can help you understand the intricacies of life insurance, so you know what to look for when buying coverage.