Buying life insurance for your parents?

[Khao]

I just moved into my condo with my girlfriend and we both bought term life insurance in case any of us die it'll pay the mortgage entirely. This got me thinking about my parents who both have no life insurance and no investments or assets. If any of them were to die soon, it would be a financial burden for my brother and I.

Financially and emotionally it seems like a really wise plan. We would not have any financial stress in the event of their death (which is the last thing you want when a family member passes away since you're already dealing with a ton of stress). It would be as if my brother and I funded our parent's inheritance to us which would give us a more comfortable living after their death. We could put the life insurance money towards our (future) children instead of taking it ourselves if that makes the whole matter less weird for my parents.

Did any of you do this? I'm not sure how I could talk to my family about this since it's a very delicate subject. It's like betting on my parent's death which will happen sooner or later (both in their 50s and smokers) but at the same time it's to protect my brother and I, not only to cash a big cheque when they die.

[tmac]

I don't have any guidance on the emotional/family part of it, but I don't think there's any legal or procedural requirement that the covered person actually be informed that a life insurance policy has been taken out. Not that I'm suggesting you should hide it from them, but it's good information to have.

[tooqk4u22]

I am not sure what you mean by protecting you and your brother if your parents die....unless of course you are still their dependents or your worried about the surviving spouse be provided for but it kind of sounds like it is about profiting from their death.

Just run the numbers and see what a term life insurance policy will cost - obviouslly it will be a lot higher than yours due to age and because they smoke.

There is nothing illegal or unethical about this, in fact wealthy people due this all the time to essentially transfer wealth while avoiding estate taxes.  Also, banks and other companies often have life insurance policies on their employees.

[Khao]

I am not sure what you mean by protecting you and your brother if your parents die....

Everything surrounding funeral costs a lot. It can be between $5k~$10k for the normal/cheap ones and when it's a tragic event like that you don't necessarily have the cash ready to pay for this and you don't want to pay for it also. If the insurance policy covers all of these costs so it doesn't make an "unexpected" dent of $5k in our emergency savings it's something less to worry about. Then there is the notary if there is a testament and if our parents have debt, their debt will become ours. There are many things to consider about death and when you're not prepared (and since death is so taboo we never really prepare/talk about it), it will bite you in the ass really hard.

[tooqk4u22]

I am not sure what you mean by protecting you and your brother if your parents die....

Everything surrounding funeral costs a lot. It can be between $5k~$10k for the normal/cheap ones and when it's a tragic event like that you don't necessarily have the cash ready to pay for this and you don't want to pay for it also. If the insurance policy covers all of these costs so it doesn't make an "unexpected" dent of $5k in our emergency savings it's something less to worry about. Then there is the notary if there is a testament and if our parents have debt, their debt will become ours. There are many things to consider about death and when you're not prepared (and since death is so taboo we never really prepare/talk about it), it will bite you in the ass really hard.

Ok - a small policy like that will be relatively cheap and you don't need to do it forever (I don't mean because of the eventual end) because as you live below your means, increase your income and savings rate, it will only be a matter of time before $5k won't be that big of deal to you. 

Also, who cares if it is taboo - you should ask them about what their plans are and who knows they might already have a policy.  Don't know until you ask.

[momo]

Khao, it is honorable how you want to help your parents. Life insurance, advanced medical directives, final burial wishes, and estate planning as a whole are highly sensitive topics for most families. Few people want to openly discuss money and certainly not death. I completely agree it is far better to create an open dialogue to raise awareness. Ultimately you want to help your parents and ease their burden and share with them your concerns.

For life insurance in particular long term care may be more of a priority than term or permanent insurance. How young are your parents? Do they have existing medical concerns? Are they emmployed, retired, in debt? And also what is their standard of living? These are some basic questions to consider before buying any insurance policy because it is essential to understand their needs and desires. Also you may or may not be aware of this, but if you buy a policy for your parents they may still need to undergo a medical examination to determine their eligiblity and suitability. Premium costs for elderly parents typically are higher than younger aged policy holders. So the previous question about their current health condition is important.

You can run some life insurance and long term care quotes here:
http://www.insurance.ca.gov/0100-consumers/0060-information-guides/0050-health/ltc-rate-history-guide/long-term-care-insurance.cfm
https://www.genworth.com/longtermcare/home

The key is to openly and calmly raise the topics without creating pressure with your parents. You may wish to practice with your gf how you will approach your parents about these highly sensitive topics. Good luck! Let us know how it goes.

Cheers!

[tooqk4u22]

Good call SM - long term care could have far greater financial consequences than burials - and insurance really gets pricey as you get older. 

[James]

I'd rather take on the debt if needed rather than pay a company to cover the funeral just in case. The life insurance company won't give a policy unless they expect to make a profit, so you must assume you will lose money in the bargain. What you might gain in the bargain is peace of mind, it's up to you whether that is worth the cost. Despite being smokers, if they are only in their 50s they will likely live quite a while yet. And if they are very unhealthy and you think they might die soon, then life insurance will certainly be out of the question. I would ask them directly about their end of life wishes and what savings they have for retirement or other expenses. That is information you should probably know, at least in general.  If they don't want to tell you that's fine, but you also don't owe them a fancy funeral that you can't afford, and you probably can't afford life insurance either.

No, their debt does not automatically become your debt.  Unless you have a special circumstance, their debt is their debt and you won't be responsible for it.

Long term care insurance is probably a more appropriate consideration, but also probably cost prohibitive.