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Parents Life Insurance
When it comes to buying life insurance for your parents, most people prefer term life insurance to whole life insurance. The reason for this preference is quite simple: term life insurance costs less than whole life insurance and a term life insurance policy can be purchased for a number of years. As such, a term life insurance policy can be easily purchased to outlast a person's projected lifespan.
Although term life insurance policies are usually the less expensive option, it is important to note that these policies will be more expensive when taken out on behalf of an elderly person as opposed to a younger person. In addition, the term lengths available on these policies will often be less than what is available to those that are younger. After all, the insurance company doesn't want to have to end up making good on the policy.
There are other factors that you should consider when deciding to purchase a term life insurance policy as well. For example, term life insurance policies do not build equity, while whole life insurance policies do. When purchasing a term life insurance policy, you are simply purchasing a death benefit that will be paid in the event of your parents' death. This is different from whole life insurance policies that allow you to accumulate a cash value.
If you do decide to go ahead and purchase term life insurance for your parents, it is important to be sure to select a policy that allows you to renew down the road. This way, once the term is expired, you can renew the policy if necessary. In some cases, you can have the policy set up so that it renews automatically. In most cases, however, you will have to jump through a few hurdles before the policy can be renewed. This often entails going through a medical examination, filling out a lifestyle questionnaire, and undergoing a raise in the amount of the premium.
You also need to be sure to ask whether or not the premiums for the insurance policy are fixed or if they will adjust during the term. If the premiums are set up to adjust during the term, they can be raised significantly every couple of years. This, of course, can make it difficult when it comes to making payments while living on a tight budget. Many children will explore the options of burial insurance if they are simply looking for a policy that is going to cover the funeral expenses and burial fees.
If you are taking out an insurance policy on your parent for the purpose of paying the estate tax you should discuss best practices with your life insurance agent. For estate tax planning life insurance policies do not need to have one individual as the "insured" and "owner". Meaning, a policy insuring your parent's life can be owned by you. In listing you as the owner and the beneficiary you are guaranteeing that the tax free proceeds of the death benefit will not become part of your parent's estate.
Be certain to ask about these factors as well other features of the policy, such as whether or not it offers a disability waiver of premium, death benefits, or accidental death benefits, before signing up for it. In addition, don't totally eliminate the possibility of getting a whole life insurance policy. With its ability to build equity and without the need to worry about renewing it later, this policy may actually be a better option for your situation.