Can I Take a Life Insurance Policy Out on My Parents?

Many adult children consider obtaining a life insurance policy on a parent to help manage potential financial responsibilities that may arise. While it is possible to secure such a policy, certain requirements must be satisfied to ensure its legal validity.

Understanding Insurable Interest Requirements

A fundamental legal principle in life insurance is “insurable interest,” which dictates that the policy owner must stand to suffer a legitimate financial or emotional loss if the insured person were to die. Without demonstrating this interest, an insurance policy cannot be legally issued.

An adult child typically demonstrates insurable interest in a parent through various financial connections. This can include situations where the child is financially dependent on the parent, such as if the parent provides significant financial support. Alternatively, insurable interest exists if the child would incur financial burdens upon the parent’s death, such as responsibility for funeral and burial expenses. The child might also be responsible for outstanding debts of the parent, end-of-life medical expenses, or other financial obligations like a mortgage or co-signed loans. The insurer will evaluate these financial relationships to confirm the presence of insurable interest.

Obtaining Parental Consent

Beyond the requirement of insurable interest, the insured individual, in this case, the parent, must provide explicit and informed consent for a life insurance policy to be taken out on their life. This consent is a non-negotiable step in the application process.

Consent is typically formalized through the parent’s active participation in the application. This involves the parent personally signing the application form, which confirms their agreement to the coverage. Furthermore, the parent will need to provide their personal and medical information directly to the insurer, and in most cases, undergo any required medical examinations.

Navigating Policy Selection and Application

Two primary categories of life insurance are relevant: term life insurance and whole life insurance. Term life insurance provides coverage for a specific period, such as 10, 20, or 30 years, and can be suitable for covering finite financial obligations like a specific debt.

Whole life insurance, a form of permanent life insurance, offers lifelong coverage as long as premiums are paid. This option is often considered for covering final expenses, leaving an inheritance, or providing long-term financial security. Whole life policies typically build cash value over time, which can be accessed later through loans or withdrawals. Another type of permanent coverage, often called final expense or burial insurance, is specifically designed to cover funeral and end-of-life costs, and these policies often have lower coverage amounts (e.g., up to $35,000) and more lenient underwriting.

The application process requires comprehensive information and documentation from both the parent (the insured) and the adult child (the policy owner). Personal details needed for the parent include their full name, date of birth, Social Security number, and address. Extensive medical history is also required, encompassing current health conditions, past diagnoses, medications, and family medical history. Lifestyle details such as smoking habits, hobbies, and occupation are also collected.

The adult child, as the prospective policy owner, will need to provide their personal and financial information to support the insurable interest. The parent’s direct involvement is essential for completing and signing the application form, and they may need to undergo a medical examination. The insurer then conducts an underwriting process, evaluating all submitted information to assess risk and determine policy approval and premium rates.

Managing the Life Insurance Policy

Once a life insurance policy on a parent is issued, the adult child, as the policy owner, assumes specific responsibilities and rights. The policy owner controls the policy, including paying premiums, making changes, and designating beneficiaries. The adult child is typically designated as the primary beneficiary, meaning they will receive the death benefit upon the parent’s passing.

Consistent and timely payment of premiums is necessary to keep the policy active. Non-payment can lead to policy lapse, resulting in loss of coverage. Regular policy maintenance involves keeping contact information updated with the insurer and reviewing policy statements. It is also prudent to periodically review the coverage amount to ensure it still meets financial needs, as circumstances can change over time.

When the time comes to file a claim, the process generally involves notifying the insurance company as soon as possible after the parent’s death. The primary document required is a certified copy of the death certificate, obtained from the funeral home or local vital records office. The beneficiary will also need to complete the insurer’s specific claim form, providing personal details and the policy number. Insurers may request additional documentation, such as medical records, depending on the circumstances of death. Once all required documents are submitted, the death benefit is typically paid out, providing financial support as intended.