Enquiries about life insurance for parents are more common than many people might assume. When your parents die, there may be scenarios where you are left with a potential financial liability which could be covered by life insurance.
The most common financial liabilities include funeral costs and potential inheritance tax payments.
Whether you are looking for life insurance for your parents with you as the beneficiary or individual policies set up to provide financial assistance for your surviving parent, there are many options out there.
However, there are various factors to take into consideration when approaching life insurance companies, with the age of your parents and any existing medical conditions impacting cover availability and premiums.
- – Life insurance policies and mortgages can be linked
- – Guide to over 50s life insurance
- – Best life insurance policies in the uk detailed
- – What is the death clock? And is it accurate?
- – Guide to moving a Life insurance policy into a trust
We update all our guides regularly. If you are researching Life Insurance Policies and we haven’t got an exact guide that helps you, keep coming back as we update daily.
Can You Take Life Insurance on Your Parents?
Yes. It is possible to take out a life insurance policy on one or both of your parents. Normally you would require the consent of your parents, evidence of an insurable interest and in some cases, they may need to take a medical. However, if your parents are over 50, then the requirement for a medical is often waived.
What Is an Insurable Interest?
An insurable interest is evidence of a financial loss which would be passed to you in the event of your parent’s death. The most obvious insurable interest would be funeral costs, although there may be other issues to take into consideration. Without evidence of an insurable interest, it is unlikely you will be able to obtain life insurance.
Are My Parents Classed as an Insurable Interest?
Yes. While it may feel a little uncomfortable taking out a life insurance on your parents, you need to take into account the long-term financial consequences of their death. Taking out life insurance on an insurable interest is something which is commonplace across the insurance industry.
This is a perfectly legitimate element of financial planning, and the subject of insurable interest should be discussed with your financial adviser.
What Other Parties Are Classified as an Insurable Interest?
There are many examples of insurable interest where it is perfectly legitimate to take out life insurance, obviously with the person’s consent. For example, if you are run a company with your business partner, it is not difficult to see the potential financial consequences of their death.
This could have a huge impact on your finances, cost of running the business and ultimate control. Therefore, you will find that many businesses have various types of insurance cover for individuals classified as an “insurable interest”.
There are 14.4m people in the UK with a life insurance policy.
Can I Take Out Life Insurance on My Parents to Cover Inheritance Tax Liabilities?
Yes. In this particular scenario, it is perfectly legitimate to see them as an “insurable interest” because their death may well leave you with significant inheritance tax liabilities. We have seen many situations where beneficiaries have been forced to sell properties to cover inheritance tax, often leaving them with next to nothing. Indeed, there are occasions where the culmination of tax liabilities and debts can actually leave a deficit in overall assets left.
While the issue of inheritance tax is often a difficult subject to bring up with your parents, it is a conversation you should have sooner rather than later. The last thing you or your parents would want is for any unforeseen tax liabilities to emerge in light of their death.
The majority of people find a degree of comfort in the fact that they will be leaving behind assets for their children and family. So, classifying them as an “insurable interest” is certainly not derogatory or morbid and is more a case of common sense.
Will I Pay Tax on Any Life Insurance Payout?
Traditionally you should not be exposed to either income tax or capital gains tax when in receipt of a life insurance payout. The majority of life insurance policies are “written in trust” which effectively separates them from the estate of the deceased.
As a consequence, the life insurance payout will not be included in net asset calculations and will, therefore, be removed from potential inheritance tax liabilities.
What Is “Written in Trust”?
When you take out an insurance policy, you will likely be advised of the “written in trust” structure which effectively means that the insurance policy and any future payments are treated as a separate legal entity.
They are not considered part of the deceased’s estate, and therefore under normal circumstances, they would not attract any form of additional taxation. There may be occasions where a life insurance payout is paid into a trust where the additional funds may attract some form of taxation.
However, the use of life insurance policies within a formal trust structure is a complex area of the market and one where advice should be sought.
What Factors Impact Life Insurance Premiums?
Many people speculate about the various factors which impact life insurance premiums. While they may differ from person to person in general the factors which an insurance company would consider include age, gender, family/individual health history, smoking habits, hobbies and occupation.
Would My Parents Need to Disclose Existing Medical Conditions?
When applying for any life insurance, it is important to disclose any existing medical conditions. While in some cases this may bar an individual from taking out life insurance, it is more likely they will be offered a policy with restrictions.
For example, if they had an existing heart condition, then the insurance company may look to exclude death payments as a consequence of heart issues.
What if I Failed to Disclose Existing Medical Conditions?
In the event that existing medical conditions came to light which were not disclosed during the application process, the policy would likely be terminated.
The UK life insurance industry is very broad and deep, and there are very few situations which will not attract some kind of life insurance offer – no matter the underlying health issues. So, it is very important to be upfront and honest when making a life insurance application.
How Long Would Life Insurance for My Parents Last?
The blueprint for over 50 life insurance is similar to that of a whole of life policy in that life cover will continue as long as the premiums are being paid. Life insurance will generally be available up to the age of 80 although upon turning 90 insurance premiums would no longer be required.
However, life cover and potentially terminal illness cover would still be in place for the rest of the policy holder’s life. It is sensible to take into account the level of premiums, payment on death and the potential life expectancy of your parents to see whether a policy makes financial sense.
The Share of Adults in the UK That Had Life Insurance
This statistic displays the share of adults in the United Kingdom (UK) that had life insurance (PMI) in 2017, by age. Of the 14.4 million adults that had life insurance in 2017, those aged between 45 and 54 were the most likely to be covered by life insurance with 28 percent. Those aged between 18 and 24 years made up for 2 percent of life insurance owners.
Why Are My Parents Requesting Life Insurance?
Many parents will look towards life insurance in later life as a means of mitigating any potential financial liabilities which could be passed on to their children. It can also prove useful if your parents have an outstanding mortgage on their home. Upon death, the life insurance proceeds could be used to pay off the mortgage and pass the family home to their children free of debt.
How Much Will Life Insurance Cost My Parents?
It will depend upon the type of insurance policy and the level of payment on death required, but life insurance for over 50s can start from anywhere under £10 up to £75 a month. The older you start your policy, the higher the premiums simply because in later years your life expectancy could be relatively short. Life insurance is something which you should consider from a relatively early age.
Should I Take Advice About Life Insurance?
Whether you are looking to take out life insurance for yourself, your parents or another “insurable assets” it is sensible to take advice. There are numerous types of insurance policies available, and the cost of premiums can vary quite widely.
When looking at life, insurance is important to consider this in the context of your overall finances and potential changes going forward. This may include inheritance, improved career prospects, a significant increase in income or perhaps your business is going from strength to strength.
The idea that life insurance is “wasted money” is a rather blinkered way of looking at this very useful form of insurance. If that were true, then you could argue that any type of insurance is “wasted money” when, in reality, it can provide a very useful safety net.
So, when you next review your finances, you should take into account your current situation, prospects for the future, the potential for inheritance and any other issues which may impact your long-term wellness.
While it may seem a little macabre and underhand to take out life insurance on your parents, there are situations where children may be left with financial liabilities upon their death.
As long as there is a valid insurable interest, then the use of life insurance policies to mitigate future expenses is perfectly legitimate. If you are unsure about taking out life insurance on your parents, then you should seek professional advice.
Quick Life Insurance FAQs
Joint life insurance is a popular form of life insurance whereby two individuals are named on the policy, but only one payment will be made. Irrespective of which party dies, life insurance will be paid out on the death of the first person then the policy will end. This ensures a degree of financial assistance for the surviving party.
If we assume that you have a capital repayment mortgage with 20 years to go, the mortgage liability will reduce as interest and capital is repaid month by month. Therefore, in this instance, it makes sense to look at decreasing term insurance where payment on death would follow the downward path of your mortgage liability.
As the life insurance payout would reduce the length, you live this gives scope for reduced premiums compared to traditional term insurance.
Term insurance is a type of life insurance policy which can be shaped around, for example, your mortgage term. Let us assume that you had 20 years to go on your interest-only mortgage; you could take out a 20-year life insurance policy which would cover the repayment of capital in the event of your death.
Limiting the length of the life insurance policy in this manner (as opposed to a whole of life policy) will reduce your premiums.
Whole of life cover is what you would expect; it guarantees payment to the named beneficiary no matter when you die. There are other types of life insurance policy which only pay out on death during a certain period. As a whole of life insurance has no fixed term, the premiums will be more expensive.
Under normal circumstances, life insurance payments will be released relatively quickly in the event of the death of the individual named on the policy. The immediate aftermath of the death of a loved one is traumatic in itself without additional financial pressures.
There are certain formalities to go through, such as confirmation of death, death certificate, but once the paperwork has been completed, the process should be relatively quick.
How Can Money Savings Advice Help You With Life Insurance?
Here at Money Savings Advice, we have partnered with some of the UK’s leading Life Insurance brokers. They have already helped thousands of people get the best Life Insurance cover and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.