How to Take Life Insurance Out on Your Parents

Acquiring a life insurance policy on a parent is a financial decision that can provide security for future expenses. While possible, specific requirements and considerations are involved. Understanding these steps helps ensure a smooth application and ongoing management of the policy.

Understanding Insurable Interest

A fundamental requirement for obtaining life insurance on another person is demonstrating an “insurable interest.” This concept signifies that the policy purchaser would experience a genuine financial or emotional loss if the insured individual were to pass away. It prevents individuals from taking out policies purely for speculative gain.

For parents, a child typically possesses insurable interest due to the inherent financial and emotional connection. This interest can stem from potential responsibilities for funeral costs, end-of-life medical expenses, or financial obligations where the child might become responsible, such as co-signed loans or inherited debts. This interest must exist at the time the policy is purchased.

Preparing for the Life Insurance Application

Before submitting any formal application, gathering specific information and securing parental consent are essential. Explicit, written consent from the parent being insured is almost universally required, as a policy cannot be taken out without their knowledge and agreement. This consent often involves the parent actively participating in the application process, potentially by signing forms.

Applicants will need to collect personal details for both themselves and the parent, including full names, dates of birth, addresses, and Social Security numbers. Comprehensive medical information about the parent is also necessary, encompassing current health conditions, medications, treatment history, and family medical history. Insurers may also request contact information for the parent’s doctors to verify health records.

Insurers may require financial information from the parent to justify the coverage level, ensuring the policy aligns with a legitimate financial need. Finally, the applicant must consider beneficiary designation, which involves deciding who will receive the death benefit. While the child applying for the policy is often the owner and primary beneficiary, other individuals, trusts, or even charities can be named.

The Application and Underwriting Process

Once all necessary information is gathered, the formal application process begins. Accuracy and completeness are paramount when filling out the application, as any discrepancies can delay or complicate approval. Providing truthful answers regarding health, lifestyle, and family history is important.

Following the application submission, a medical examination for the parent is typically required. A paramedical professional conducts this exam, which includes measuring height, weight, blood pressure, and pulse. Blood and urine samples are also commonly collected for laboratory testing to assess cholesterol, blood sugar, and other health indicators.

The collected information then undergoes an underwriting review, where the insurance company assesses the risk associated with insuring the parent. Underwriters evaluate factors including the parent’s age, health status, medical history, lifestyle choices, and financial background, to determine eligibility and set premium rates. This process can take several weeks. If approved, the insurer extends a policy offer outlining the terms, coverage amount, and premium. Review these terms carefully before accepting and making the initial premium payment.

Policy Ownership and Ongoing Management

Once a life insurance policy is issued, the child who initiated the policy typically assumes the role of policy owner. As the policy owner, they hold rights and responsibilities, including paying premiums, designating or changing beneficiaries, and potentially accessing any cash value if it is a permanent life insurance policy. The policy owner controls decisions related to the policy’s future.

Consistent and timely payment of premiums is crucial to keep the policy in force; failure to do so can lead to policy lapse and loss of coverage. The policy owner also has the flexibility to change beneficiaries at any time, provided the designation is revocable. It is important to ensure that beneficiary designations remain current and accurately reflect the policy owner’s wishes, especially after major life events.

Periodically reviewing the life insurance policy, ideally annually or after significant life changes, is a prudent practice. These reviews confirm that the coverage amount remains adequate for evolving financial needs and that beneficiary information is up-to-date. Consulting with a financial professional during these reviews can help optimize the policy to align with current circumstances and financial goals.