Can I Get Life Insurance on My Grandparents?

Life insurance is a financial contract providing a payout to designated beneficiaries upon the insured individual’s death. While commonly sought for spouses or children, obtaining life insurance on a grandparent is possible under specific conditions. This article outlines the requirements and steps involved, explaining how such a policy can offer financial protection and peace of mind.

Insurable Interest Requirements

A fundamental principle in life insurance is “insurable interest,” meaning the policy owner must have a legitimate financial stake in the insured’s continued life. This prevents speculative purchases and ensures the policy is for financial protection, not gain from an untimely death.

For a grandchild to obtain a policy on a grandparent, they must demonstrate a reasonable financial loss or hardship if the grandparent were to pass away. While a grandparent-grandchild relationship suggests an emotional connection, this alone is insufficient to establish insurable interest. A tangible financial dependency or expectation of financial loss is required.

Examples include the grandparent providing direct financial support, contributing to household expenses, assisting with childcare, or if the grandchild would bear the burden of final expenses. Insurable interest must exist at the time of purchase, though it does not need to persist until the insured’s death. Documentation requirements can vary by state.

Life Insurance Options for Grandparents

Several types of life insurance policies are available and suitable for older individuals, including grandparents. Term life insurance offers coverage for a specific period (e.g., 10, 20, or 30 years) without accumulating cash value. Premiums are level for the term’s duration, and a death benefit is paid only if the insured passes away within that period.

Whole life insurance provides lifelong coverage as long as premiums are paid, and it includes a cash value component that grows on a tax-deferred basis over time. This cash value can be accessed through withdrawals or policy loans. Universal life insurance offers more flexibility in premium payments and death benefits, allowing adjustments based on financial circumstances. It also features a cash value component that can grow based on interest rates.

For older individuals or those with certain health conditions, “guaranteed issue” or “simplified issue” policies may be available. These policies require no medical exam or only simplified health questions, making them easier to obtain. However, they come with higher premiums and lower death benefits compared to fully underwritten policies, and they may have a waiting period before the full death benefit becomes available.

The Application Process

Applying for life insurance on a grandparent requires their full cooperation and informed consent. The application process begins with gathering personal and medical information from the grandparent. This includes their name, date of birth, Social Security number, medical history, current and past health conditions, medications, and contact information for their treating physicians.

Information about the grandparent’s lifestyle (e.g., smoking or alcohol use) and family medical history is requested. The grandchild, as the applicant, must provide their personal details, including name, date of birth, and Social Security number. They must also supply financial details or documentation to substantiate insurable interest, such as records of financial support provided to the grandparent or responsibility for their care expenses.

Many life insurance applications require a medical examination, often called a paramedical exam, paid for by the insurer. This exam involves measurements of height and weight, blood pressure and pulse checks, and the collection of blood and urine samples. An electrocardiogram (EKG) may be required for higher coverage amounts or older applicants.

After the application and any required medical exams are completed, the insurer begins the underwriting process. Underwriting assesses risk based on gathered information, including medical records, lifestyle, and financial details. Insurers evaluate factors like age, health status, and family history to determine eligibility and premium rates. This review period can take a few weeks (2 to 6 weeks), during which the insurer might request additional medical records or clarifications. Outcomes include approval, denial, or an offer with modified terms, followed by premium payment setup once the policy is issued.

Policy Ownership and Beneficiary Designation

When a grandchild applies for and pays for a life insurance policy on a grandparent, the grandchild becomes the policy owner. The policy owner holds rights, including changing beneficiaries, surrendering the policy, or accessing any accumulated cash value through loans or withdrawals, if the policy type allows. The policy owner is also responsible for ensuring all premium payments are made to keep the policy in force.

The beneficiary is the individual or entity designated to receive the death benefit when the insured person passes away. The policy owner is responsible for this designation. The beneficiary does not need insurable interest at the time of the insured’s death; this requirement only applies at the policy’s inception. Policy owners can designate both primary and contingent beneficiaries to ensure the death benefit is paid according to their wishes.

The death benefit received by the beneficiary from a life insurance policy is not considered taxable income. However, if the death benefit is not paid out immediately and accrues interest, that interest income may be taxable to the beneficiary. If the policy proceeds are paid to an estate and the estate’s value exceeds federal or state estate tax thresholds, a portion of the death benefit could be subject to estate taxes.