Can a Child Take Out Life Insurance on a Parent?

Adult children often consider purchasing life insurance for their parents. This decision often stems from a desire to provide financial security, covering end-of-life expenses or ongoing financial support needs. While it is possible for a child to take out a life insurance policy on a parent, certain requirements must be met to ensure the policy is valid. These conditions are in place to protect all parties involved and ensure the insurance serves its intended purpose.

Understanding Insurable Interest

A fundamental requirement for obtaining a life insurance policy on another individual is demonstrating “insurable interest.” This concept means the policyholder would experience a legitimate financial or emotional loss if the insured person were to die. Without this interest, the policy could be considered a wager and would be void. This rule prevents fraudulent or speculative purchases of life insurance.

For a child to establish insurable interest in a parent, there must be a tangible financial connection or a reasonable expectation of financial burden upon the parent’s death. Common examples include the child being responsible for the parent’s funeral and burial expenses, providing ongoing financial support, or incurring significant caregiving costs or other financial hardship due to the parent’s passing. Proving insurable interest is a standard part of the life insurance application process, often demonstrated through the relationship itself and supporting financial information.

Obtaining Parental Consent

Beyond establishing insurable interest, the parent being insured must provide explicit and informed consent for the life insurance policy to be issued. This consent is a non-negotiable ethical and legal requirement, designed to protect the individual’s privacy and prevent potential fraud.

Consent is typically obtained when the parent signs the application form for the policy. They may also need to participate in a medical examination or complete health questionnaires, providing personal health information directly to the insurer. If consent is not properly given or is obtained through misrepresentation, the insurance policy could be invalidated by the insurer. The parent’s full cooperation and understanding are essential throughout the entire application process.

The Application and Underwriting Process

Once insurable interest and parental consent are secured, the practical steps of applying for life insurance begin. The child, as the prospective policy owner, will need to gather various details from both themselves and the parent. This includes personal identification information, such as names, dates of birth, and Social Security numbers for both the child and the parent. Financial information related to the child’s income and the parent’s health history will also be required.

The parent, as the insured, will typically undergo a medical exam, which involves vital sign measurements, blood, and urine samples. This medical information, along with lifestyle details like smoking habits, occupation, and family medical history, is submitted to the insurer for underwriting. Underwriters assess the risk associated with insuring the parent, determining eligibility and setting premium rates based on factors such as age, health status, and overall lifestyle. This comprehensive evaluation ensures the premium accurately reflects the risk to the insurance company.

Policy Ownership and Beneficiary Designation

In this arrangement, the child typically becomes the policy owner, distinct from the insured parent. As the policy owner, the child holds significant rights and responsibilities. These include the authority to pay premiums, make changes to the policy, surrender it for its cash value if it’s a permanent policy, or transfer ownership. The owner also has the sole right to designate who will receive the death benefit.

The child, as the policy owner, will name the beneficiary or beneficiaries who will receive the death benefit upon the parent’s passing. While the child is often the primary beneficiary, other individuals, a trust, or even a charity can be designated. Clear and specific beneficiary designations are important, and they can typically be updated by the policy owner as circumstances change.