Life insurance for your parents
As we grow older, we realise how fragile life can be. Before adulthood, we relied on our parents to put safety nets and provisions in place but it’s only when we enter the working world that we start to understand the magnitude of these measures. Taking out cover for your own life goes without question, especially if you plan to have a family of your own. Adding life insurance for your parents to your portfolio is another way to ensure that your entire family’s financial needs are taken care of after their passing.
There are many life cover products available in South Africa, but not all policies are equal. This is why we have compiled a list of things to consider so that you can do a life insurance comparison between the different plans and select the policy that best identifies with your personal needs.
In This Guide:
- What is life insurance for parents?
- What are the prerequisites for taking out life insurance on parents?
- What type of life insurance is asvailable?
- Understand that life cover and funeral cover are different
- Why should you encourage your parents to have comprehensive life insurance?
- How affordable are comprehensive life insurance policies?
- Compare life insurance policies
What is life insurance for parents?
When you take out life insurance for your parents, you are taking out a policy in their name, even though you are the policyholder. You are responsible for paying the monthly premiums and you can name the beneficiaries who can claim from the life insurance provider in the event of your parents’ passing.
A life insurance policy for your parents will cover funeral expenses, it can be used to pay off any debt that your parents may have incurred, and some plans will allow beneficiaries to take care of educational expenses for children who are still in school.
What are the prerequisites for taking out life insurance on parents?
Taking out life insurance for your parents, or someone else, is certainly possible but you must have:
- Their consent (typically their signature on the application)
- Proof of “insurable interest” (you will need to provide evidence that you or the appointed beneficiary would suffer financial consequences or hardships as a result of your parents’ death)
While both of the above may be fairly easy to acquire, depending on your personal situation, having your parents apply for life insurance instead (and you pay the premiums) is sometimes a better solution.
Whichever option you choose, you can still do the heavy lifting for your parents. You can do a check on the different policies (and rates) available, you can initiate the application, and you can assist them with finalising the documentation.
What type of life insurance is asvailable?
Generally, life insurance is categorised into two types, namely term insurance and whole insurance.
Term insurance covers your parent for a set period and when you decide that you do not want to continue with the policy anymore, it will lapse without any money being paid out. The cost of a term policy is cheaper than a whole policy.
Whole insurance is more costly but with good reason. A whole policy comes with an investment plan that allows you to receive a surrender value (determined by the insurer). The surrender value is the investment portion of your cover after penalty fees and other fees have been deducted from the total.
Understand that life cover and funeral cover are different
Before applying for insurance for your parents, it’s important to understand that life cover and funeral cover are two different entities. A life policy will feature a broader range of products than just a death component. It can cover the onset of a disability, chronic and terminal illnesses, and unemployment. If you opt for whole life cover, then there’s the savings component too.
Funeral insurance, on the other hand, will only cover the expenses of your parent’s burial. It will cover the funeral, the burial costs, administrative costs, and sometimes it will also cover the costs of counselling for those who are in mourning.
When you compare life insurance with a funeral policy, then the former is generally cheaper than the latter - although the difference in premiums is not that excessive.
Why should you encourage your parents to have comprehensive life insurance?
If you are a student or live at home and are financially dependent on your parents, then their passing could mean that you will be at a financial loss. By taking life insurance out on your parents, you can protect yourself (and the rest of your family) against financial hardships should one or both pass away.
Even a policy could cover the outstanding payments on the family home, for example. If you are a student it could make provision for you to continue your education and it can also cover other debts and expenses that your parents may have incurred before their passing.
How affordable are comprehensive life insurance policies?
You may be quite surprised to discover just how can be, especially if you choose term cover over whole. In South Africa, a premium is calculated in accordance with your plan and how much cover you need.
Before requesting a quote, you should be ready to answer the following questions:
- Do you just want to take out life insurance for your parents or do you want to pay the premiums for a policy they already have in place?
- How much cover would you need so that living expenses can be taken care of as usual? Remember to consider big debt, such as a bond on the house.
- What can you comfortably afford to pay monthly?
- Do your parents suffer from any life-threatening illnesses?
- Are your parents prepared to go for a medical? A full medical might reduce the premiums.
Keep in mind that you can start by taking out a basic life insurance policy and then add on additional benefits as you can afford the increased premiums.
Compare life insurance policies
Now that you know what to ask and look out for when requesting quotes, you can do an accurate life insurance comparison on the different plans and accompanying premiums available. Remember, the more educated you are about the costs and details of different products, the better prepared you will be in your decision making.