When should parents buy life insurance?
Parents should buy life insurance as soon as possible; when you find out you are going to have a child is the best time. The younger you are when you buy life insurance, the lower the rates will be. Younger people generally have fewer health concerns and a longer life expectancy, so insurance is cheaper.
Even if you have life insurance at work, an individual policy is the best way to protect your family, since employer-sponsored coverage generally doesn't go with you if you leave that job. Waiting until you change jobs to replace the coverage may be a costly choice, since you will be older.
How to choose life insurance to protect your kids
To choose the right type of life insurance, consider how long you will need the coverage, how much coverage you need and how much you can afford to pay each month in premiums.
Term life insurance for parents allows for a bigger death benefit at a lower price. That means you can carry a large amount of life insurance coverage when you need it most and then stop paying for it when the need has passed. That’s generally when your kids are adults and you’re no longer financially responsible for them.
Should the need for coverage extend longer than anticipated, such as in the event of a disabled child who will need lifelong care, you can convert your term policy to a permanent one.
Life insurance for older parents will likely cost more than the same policy for younger parents. As you age the risk of death increases along with health problems, which means you’ll pay more for life insurance. It’s best not to wait; if you plan to have kids later in life, buy young.
Life insurance for elderly parents who want to leave some money for grown children may be even more costly. Final expense insurance may be the only available option, but it can be expensive and only provides a small death benefit.
Can I buy life insurance for my parents?
Yes, you can buy life insurance for your parents. However, you need to prove that you have an insurable interest in their lives. An insurable interest means you’d be affected financially by their death. Usually, that can be easily proven with parents, as you’d be paying any final expenses, paying off debts, and any other costs that come up when they die. You will also need your parents' consent. They must sign the policy application; you can’t take life insurance out on someone else without their knowledge.
You will be the policy owner, and the parent will be the person insured by the policy.
“In this case, the child would be the owner of the policy and the parent would be the insured. You can elect to have either person be the payor of the policy,” Gryglik says.
Depending on the plan, your insurer may want your parents to take a medical exam as part of the application. No medical exam life insurance is generally more costly, so if they are in good health you could save by having them go through the exam.
You can select the beneficiary of the policy; generally, that would be you, but it can be anyone you choose.
“As owner of the policy, you can…elect who you name as the beneficiary of the policy. You can also name multiple beneficiaries’” Gryglik says.
How much life insurance do parents need?
You need enough life insurance to cover your debts and replace the financial support your family would lose upon your death. This includes your future income. There are a number of ways to calculate how much life insurance you need. While a simple place to start is with a multiple of your annual income, using a life insurance calculator will give you a much more accurate number.
Make sure you consider all future income needs and also think about whether you plan to have more children. It’s best to buy the coverage you need upfront rather than increasing your coverage later since rates go up as you get older. Here are a few things to keep in mind as you do the math:
- College tuition for your kids
- Debts, including your mortgage
- How much your family would need to get by without your income
- Final expenses
It’s a good idea for both parents to get life insurance, even if only one has an income. It’s easy to forget how much a stay-at-home parent contributes to a household, but consider how much you’d have to pay for childcare and other household tasks.
As your children get older, your need for life insurance will wane. That’s why term life insurance is most recommended for parents; it’s there when you have the greatest need and an affordable way to meet that need in a worst-case scenario.
