Can a Child Get Life Insurance on Their Parent?

An adult child can obtain a life insurance policy on a parent. This arrangement offers financial security and peace of mind, serving as a practical financial planning tool under specific conditions.

Understanding Insurable Interest

Insurable interest is a legal concept in life insurance, referring to a financial or emotional stake in the insured individual’s continued life. This requirement ensures policies protect against genuine financial loss, not speculative purposes. Without demonstrating insurable interest, a policy cannot be issued.

A child can demonstrate insurable interest through various financial connections to a parent. This includes responsibility for future long-term care costs, medical expenses, outstanding debts, or funeral and burial expenses. A child might also seek to protect an inheritance from estate taxes or other liabilities, or have shared financial obligations like co-signed loans. The insurable interest must exist at the time the policy is purchased.

Key Requirements for Application

For a child to secure a life insurance policy on a parent, the parent’s full knowledge and consent are necessary. The parent, as the insured, must sign the application form. Without this explicit consent, an insurer will not issue the policy, and forging a signature would invalidate the policy and carry legal consequences.

The parent will need to undergo a medical examination as part of the underwriting process. This assessment helps the insurance company evaluate health, determine risk, and calculate premiums. The child, as the applicant, must provide documentation to justify the financial need for the policy.

Both the child (applicant/owner) and the parent (insured) must provide personal and financial details during the application process. This includes names, addresses, Social Security numbers, and medical history. Financial statements may also be requested to verify insurable interest. Misrepresentations can lead to policy invalidation.

Policy Ownership and Beneficiary Designation

In this arrangement, the child is the Policy Owner and Payer, managing the policy and making premium payments. The parent is the Insured, whose life is covered. The Beneficiary is the individual or entity designated to receive the death benefit. This structure allows the child to control the policy, including making changes or accessing cash value if permitted.

The child, due to their insurable interest, is usually named as the primary beneficiary. However, the policy owner can designate multiple beneficiaries, including other siblings, the parent’s estate, or a trust. These designations must be specified, with percentages allocated if the benefit is split among several parties. This flexibility ensures the death benefit aligns with the family’s financial planning objectives.

The Claims Process

Upon the death of the insured parent, the beneficiary or policy owner must notify the insurance company to initiate the claims process. Insurers provide claim forms that need to be completed accurately.

Documentation required to file a claim includes a certified copy of the death certificate. Insurers typically process claims within 30 days of receiving all necessary paperwork, though investigations may extend this timeline.

Life insurance death benefits paid to a named beneficiary are generally exempt from federal income tax. However, if the beneficiary chooses installment payouts, any interest earned may be subject to income tax. If the death benefit is paid to the deceased parent’s estate and exceeds estate tax thresholds, the proceeds could be subject to estate taxes.