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Life Insurance on Parents

There’s a number of reasons you may choose to put life insurance on your parents.

Most commonly, it’s intended to pay for final expenses. If your parents are not in the financial position to pay for their final expenses, a life insurance policy where you are the owner (payor) can resolve the problem.

In other words, you would take out a life insurance policy where you are the owner/payor and the beneficiary, and your parents are the insured. When your parents pass, the insurance proceeds are paid to you and are thus readily available to pay for final expense costs.

Types of life insurance on parents

There are two general types of life insurance available in Canada; term life insurance and permanent life insurance (permanent life insurance is commonly referred to as whole life insurance, which is not exactly correct). For life insurance on your parents, we would normally look at permanent life insurance. Permanent life insurance locks in premiums level for life, and since this type of final expense insurance is intended to be kept forever, then permanent is the appropriate type.

No medical exam vs. Medical exam

There are two ways to purchase a permanent policy – with a medical exam, or through a no-medical exam life insurance policy. Wherever possible, you should have your parents take a medical exam. This will ensure you have better insurance coverage at a far lower price. The no-medical exam policies seem convenient, but you are paying substantially for this convenience. If your parents have medical concerns, discuss this with your broker upfront so that you can determine which route is best.

In all cases, your parents will need to agree to the coverage in order to put the policy in place. They will need to take a medical exam, answer some questions, and sign the appropriate paperwork.

Other insurance strategies

This article from the globe and mail: http://www.theglobeandmail.com/globe-investor/personal-finance/maxed-out-rrsp-try-a-life-insurance-strategy/article545323/ describes an alternative investment strategy.  It involves the purchase of permanent life insurance on your parents as an investment.  While the returns on such an investment vehicle are attractive, many people would not be comfortable with such an investment.

Companies that accept life insurance on parents

Life insurance is priced for and intended to be based on statistics, with no foreknowledge of insurability or mortality. In other words, everyone that gets life insurance, should be at the same likelihood of dying as everyone else when they purchase the policy.

Some life insurance comapnies believe that children who are purchasing life insurance on their parents have additional knowledge of their insurability that a standard medical exam wouldn’t detect. If so, the decks are then stacked against the life insurance company.

As a result, not all life insurance companies will offer life insurance on parents. To determine which companies will consider coverage, please contact us at 1-877-344-4011 or head to our contact page to send us an email directly.

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