Life insurance for your 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.

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.

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. 

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. 

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.