Life insurance for parents is something that we find many children investigating. Unfortunately, about half start investigating it when the parents suffer a significant medical issue and it is far more expensive to purchase. There are three primary reasons why life insurance for parents could be important and the time to investigate it is while they are healthy and the younger they are, the better.
Children purchase life insurance for parents to provide for their final expenses and leave a legacy for the grandchildren. The reason we see most is to provide for final expenses. It is less than $60 per month for a normally healthy male non-smoker to purchase $25,000 of permanent life insurance. This can be a better way to cover the cost than to come up with $25,000 at one time. In fact, a husband and wife could have $10,000 each for less than $50 per month. This is usually affordable either for the parents or children to pay.
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 our 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 so the cost of insurance is cheap and they can accumulate cash in the policy that can be accessed for education or down payments.
A final life insurance policy purchased for parents could be for estate tax purposes. Many seniors have more cash flow than they require and it just goes into savings that attract the highest taxes. A good strategy is to encourage parents to purchase a joint last to die life insurance policy which is affordable and put the excess cash in the policy. 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 see if any of the above would be of benefit to your parents, get an understanding of why they would benefit and perhaps even some illustrations. Then you are in a position to have a meaningful conversation with them. The benefits of having life insurance for parents can be significant in having funds for their final arrangements, having a legacy for the grandchildren or even having significant tax savings plus a legacy for you and your children.
