Have you considered taking out life insurance cover for your elderly parents? Here’s what you need to know.
After raising you and providing all the love and support you’ve needed throughout your life, your parents may be entering their senior years. While it’s not nice to have to think about it, the reality is it’s a good idea to start thinking about the future, and having things in order for when they pass away.
As well as the obvious emotional distress, the death of a parent can also place you and your loved ones under serious financial strain. Taking out life insurance for elderly parents is a simple and convenient way to help lessen the financial burden when they pass away.
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Is it possible to take out life insurance on behalf of parents in Australia?
- Cover can be taken out. However, the types of cover options are also determined by your parents age.
"Yes it is possible to take out life insurance cover for an elderly parent. How old your parent is will determine which options are available to you.” - Michael Miller, Director of MLC Advice Canberra
When should I consider taking out life insurance on behalf of my parents?
You would buy the insurance to cover a financial need or gap which would present itself if you lost one or both of your parents.
For instance, Miller says a parent might be helping you out by:
- Providing some child care for your children while they're young
- Being a guarantor on your home loan, or
- Renting a granny flat on your property.
“If your parent is providing that type of support for you and that would stop on their passing, then you might need some life insurance to cover a gap. Don't forget to consider, though, whether you would inherit assets from their estate that might also cover that gap,” Miller says.
Andrew Courtney, Principal Adviser and Director of Plenitude Wealth, says it may be worth considering life insurance on behalf of your parent if your mum or dad doesn’t see the value in taking the full range of life insurances out.
How does it work?
If taking out life insurance for a parent seems a good idea, the first thing to be aware of is that you will need their go-ahead. “You won't be able to proceed without your parent's consent,” Courtney (Plenitude Wealth) says. It’s not difficult to take out cover, if “you can afford the premiums, your parents are not ill, and (they) are happy to go along with the process”.
If you set up a new life insurance policy, you would be the policy owner and your parent would be the life insured. As the policy owner, it’s up to you to pay the premiums. You retain full control over the policy, including nominating where any benefit payments would go.
This provides the peace of mind of knowing your family will receive financial support if the unexpected happens. As for your mum or dad, it gives them the ability to leave something behind for their loved ones, without the financial burden of maintaining a life insurance policy themselves.
Eligibility criteria and how to apply
When you apply for life insurance for a parent, they usually need to go through an underwriting process, which requires them to answer a range of health-related questions.
“This will give the insurance providers the information they need to calculate the risk associated with insuring your parents. This can be quite a laborious process with a lot of back and forth amongst the insurance providers, financial adviser, parents and doctors,” Courtney says.
Depending on the policy you select, your mother or father may also have to undergo medical tests, although Miller points out that the level of medical underwriting differs between policies. “Some policies don't require a health questionnaire, but they might not be as strong cover and often have exclusions for pre-existing medical conditions,” he says.
Policies can also have different maximum entry ages, which is the cut-off age for a parent after which you will no longer be able to apply for cover.
What to watch out for
The most important thing to be aware of when buying life insurance for an elderly parent is that cover will be expensive. Generally speaking, the older the life insured, the more expensive the cover. This is simply due to the increased risk of illness for elderly people, and hence the increased likelihood you will need to make a claim.
“A lot of life insurance gets more expensive as the insured person gets older, and you should consider how long you'll need the cover and what that would cost,” Miller says.
Another factor to consider is the insurer’s approach to pre-existing conditions. If your parent already suffers from certain conditions, check with the insurer to find out whether they will be covered or excluded. If they are covered, find out if this means a premium loading will be applied, and if so, work out if you can still afford it.
“Make sure to disclose everything you know, because insurance providers need to understand the whole picture to provide the best cover, or (to decide) if they can cover your parents in the first place,” Courtney explains.
Why life insurance is still important for the elderly
There’s a widespread misconception that life insurance isn’t all that important for older people. While it can prove critical for younger people with extensive financial obligations, such as a mortgage, and children to support, do elderly people really benefit from cover?
The answer is a resounding yes. Life insurance for elderly parents is important for a number of reasons:
- It covers financial obligations. While older Australians might not have the same responsibilities they once did, they still have debts that need to be paid and loved ones they need to support. Life insurance ensures those debts and obligations don’t become a burden when they pass away.
- It can lessen your worry about money. The death of a parent can be a difficult and deeply emotional time, but it can also place you under financial stress.
- Australians are living longer than ever before. According to figures from the Australian Institute of Health and Welfare, Australian men aged 65 in 2013–2015 can expect to live to the age of 84.5 years, while women of the same age are expected to live to an average age of 87.3. So, even if your parents are ageing, it can still be worthwhile taking out life insurance cover in their name.
- Life insurance provides peace of mind. It’s impossible to predict what the future holds, and illness, injury and accidents can happen at any time. Life insurance provides a financial safety net and protection against uncertainties.
- It helps provide for loved ones. Having life insurance in place ensures an elderly parent can leave a legacy of financial support for their spouse, children or grandchildren.
What types of cover should you consider?
There are several kinds of insurance to think about when comparing policies:
- Seniors life insurance. Life insurance, also referred to as life cover or term life insurance, provides a lump-sum payment when the person insured dies or is diagnosed with a terminal illness.
- Accidental death insurance. Often available as an optional extra with life cover, accidental death insurance provides a lump-sum payment when the person insured dies as a result of an accident.
- Funeral insurance. This pays out a lump sum when the person insured passes away, and is designed to help you cover funeral costs and other immediate expenses. You can take out funeral insurance to cover these costs.
Each option has its own unique benefits and advantages, so speak to your financial adviser about the policies available and the type of cover that’s right for you and your family.
Do you need to take out a new policy?
If your parents already have some level of life insurance in place, it may not be necessary to take out a new policy. Instead, you may be able to transfer ownership of the existing policy into your name.
“Sometimes people take out insurance when they are younger, to cover things like their mortgage and raising their children. Once they have retired or are close to retirement age, they might not have actually cancelled the cover,” Miller explains.
“If you do need insurance on your parent's life and they have existing policies, you might be able to look at options like transferring the ownership of that policy, or paying the premiums on their behalf and being named as the beneficiary.”
Speak to a financial planner for advice on the best approach.