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Buying life insurance is an important process, but it can also be difficult, especially if you are looking to buy coverage for your family. One of the commons questions that we get is from people trying to buy insurance coverage for their parents.
After 6 minutes of reading this article you will be equipped the the knowledge to confidently offer advice and help to your parents for buying life insurance.
First of all, this is legal and happens every day. As long as your parents know about it and are willing to sign an application and complete the free life insurance medical exam, then you won’t have any issues as long as you follow our tips below.
If you want to look at the several other options like life insurance for diabetics or high risk life insurance, we can help you with that as well. We also have some of our reviews available such as our AARP Life Insurance Review or our State Farm Life Insurance Review if you want to learn more about the insurance they offer.
Now, let’s get started with a few common questions:
Is buying life insurance on your parents a good investment?
If your parents can qualify for a Standard or better health classification, life insurance can be a great way for your parents to leave you something when they pass. If your parents are under the age of 75 and have a normal life expectancy (no major health issues), in most cases it’s a very efficient way for you parents to leave a legacy.
If your parents have moderate or severe health issues, the costs become more prohibitive. You’ll want to contact us to go over their rates to determine if this is financially viable.
Can I pay for my parents life insurance policy?
Yes. This happens all the time. This is a great way to give coverage to your loved ones.You just need to make sure you structure the policy correctly and apply for a modest amount of coverage.
Please follow the tips below:
3 CRITICAL Tips for Buying Life Insurance for Parents
Tip #1: Ownership of the Policy Matters
The way life insurance typically works is that the owner of the policy and person paying the life insurance premiums is also the one being insured. So ideally, your parents would be the owners and the payers of the policy. If you’re just managing and coordinating the life insurance for your parents who will be the actual owners of the policy, then you’ll have nothing to worry about here. Move on to our next tip.
However, if you’re planning on paying the life insurance premiums and taking ownership of the policy for your parents, you’ll have to prove insurable interest.
Meaning, you’ll have to state why you need this life insurance on your parents. Common reasons are to pay off debt, cover final expenses, estate planning reasons or if you’re still financially dependent on your parents. All of these are reasonable insurance interests and you shouldn’t have any problem owning the policy on your parents.
Beware of the Goodman Triangle
This is important and comes into play often when buying life insurance on parents. This is something 90% of life insurance agents won’t mention because they simply don’t know about it.
The “Goodman Triangle” refers to the situation when you take ownership of your parent’s life insurance policy and have multiple beneficiaries (typically your siblings). Since there are multiple beneficiaries, your benefits could become taxable.
Let me explain with 2 examples where the owner of the policy is the child.
Example 1: If there’s only 1 beneficiary, the “Goodman Triangle” doesn’t come into play. Life insurance proceeds will be paid tax free. However, if you plan to pass on death benefit proceeds to your siblings, those payments to your siblings will be subject to the gift tax.
Example 2: If your siblings are listed as beneficiary with you, the life insurance proceeds will become taxable.
There are several ways to avoid this taxable situation. You just have to structure the policy correctly.
Not structuring your policy correctly is the same as throwing money away. Don’t let it happen to you. We make sure all of our client’s life insurance policies are structured correctly.
Important: We know this is confusing. We’ll advise you if the Goodman Triangle comes into play and your benefits become taxable. Best thing to do is fill our our quote request form or call us. We’ll make sure you understand everything.
Tip #2: Don’t buy too much life insurance for your parents
There has to be financial justification for the life insurance and it has to be in line with your insurable interest.
For example: Your 74 year old parents live off social security and a small pension. They have little debt to pay off. Trying to buy a 1 million dollar life insurance policy would raise red flags. In this case, a $100,000 policy could fly under the radar.
The amount of life insurance you apply for can be justified by simply stating why you chose that amount of coverage on the application. However, that’s only IF you choose an amount that goes with your reason for buying the life insurance.
If you apply for too much coverage, the underwriter can respond by asking for proof through financial statements etc. This can get VERY cumbersome. You can avoid this by purchasing a modest amount of coverage.
There are several different things that you should account for when deciding how much insurance to buy for your parents. The first is any debts or final expenses that they would leave behind to you or your loved ones. Make sure that you add up all of the funeral expenses, mortgage payments, and potential hospital bills that you and your family could be left with. This will give you a great starting point for purchasing a life insurance plan for your parents.
Another factor that you need to consider is, what kind of legacy do your parents want to leave to your or your loved ones? If your parents want to pass on their savings to you or your siblings, a life insurance policy is a great way to ensure that it reaches you without being picked apart by Uncle Sam.
Tip#3: Make sure the coverage is affordable
Before you entertain the idea of securing life insurance for you parents, make sure its affordable. There are many aspects for the carrier to calculate before they determine the final premium of the policy. Things like their age, tobacco usage, their overall health, and much more.
Enter your parents information into the quote engine below. We don’t require contact information to see quotes. While these are accurate rates from the life insurance companies, use these as ballpark numbers to determine if this coverage is affordable. In most cases, insurance coverage for your parents is much more affordable than you might think.
The only variable you don’t know is the health class. If your parents don’t have any health issues, use the “Preferred” health class. If there are minor health issues, use the “Regular” health class. If there are major issues, please contact us.
Bottom Line. Life insurance for parents requires an agent experienced in working these cases. There’s a lot more that goes into it than the typical life insurance application.
There are several advantages to using an independent life insurance agent, like ours at RootFin.Com. The first advantage is that our agents have a lot of experience working with applicants looking to purchase insurance for their parents. We have worked with just about every situation and applicant scenario that you can think of.
The other advantages are that it will save you time and money on your insurance hunt. There thousands of different insurance companies that you can choose from. You could spend weeks calling different companies to receive generic quotes about their insurance plans. The other option is letting us bring all of the best rates directly to you.
Your circumstances and history will be viewed differently from carrier to carrier, which could mean drastically different premiums, or it could even mean the difference between getting coverage or being denied. Because we’ve worked with similar applicants, our advisors will let you know which companies to apply for to give you the best chance of being approved.
Not having life insurance can be one of the worst things that your parents can do. It can leave you or your siblings with thousands of dollars of debt that you’re responsible for. This probably isn’t the legacy that your parents want to leave you with, but that’s where a life insurance policy can be of use. It can give you and your loved ones the money you need to pay off any financial expenses and get through the difficult time.
At RootFin.com we help consumers purchase life insurance for their parents regularly and we enjoy doing it. We’ll help you navigate the process and secure the coverage you need. If you have any questions bout the various types of life insurance or any questions about buying life insurance for your parents (or yourself) please contact us today.