Choosing life insurance for your parent
Jun 19, 2014
Whether it’s a helping hand with browsing through comparison sites on the internet or taking on the task of decision making, we do tend to get more involved in our parents financial decisions as they get older.
Insurance in its many guises is just one of those areas where we can offer our support, which is why over the next few weeks I will be writing a series of blogs specifically about guiding your parent through the process of choosing the right insurance policy, be it life insurance, car insurance, home insurance or travel insurance.
So let’s start at the beginning and take a look at life insurance.
Look at their requirements
Before making any decisions, it’s important to look at any existing policies your parent may have and understand why they want life insurance. This will help you decide on the right type and amount of life cover required.
It is also important to consider their budget as monthly premiums may be payable for a long time, in some cases for life so take into account any foreseeable changes that will affect their income during that period.
Points you may want to discuss are as follows:
• Would their death have a financial impact on any family members?
• Is there an outstanding mortgage?
• Are there any debts or loans that would need repaying?
• Will the estate be subject to inheritance tax?
• How will funeral costs be covered?
• Would they like to leave a financial gift to family members or friends?
Consider the cost
The cost of life insurance will depend on a number of factors including your parents:
• State of health
The type of insurance, insurance provider and level of life cover required will also affect the price they should expect to pay.
Choose a plan that suits their needs
Once your parent has considered the purpose and amount of the life cover required, it is then important to understand what types of life insurance plans are available so they can choose one that fully suits their needs. The following should help you decide:
Whole of Life Insurance
Whole of Life Insurance plans provide cover for the whole of your life, paying out an agreed cash sum on death. Monthly premiums are payable either for life or to a certain age, which is usually around the insured person’s 90th birthday.
Depending on the state of your parent’s health, they can choose between a life insur plan which guarantees acceptance regardless of any health issues, or a Regular Whole of Life Insurance plan which provides a greater cash sum but has a longer application process that includes health and lifestyle questions. Here’s a bit more information on both:
Guaranteed Over 50 Life Insurance
Guaranteed life insurance plans tend to be a popular choice with the Over 50s mainly because of their simplicity and affordability. There are no medicals or health questions to answer and your parent would be covered for the full cash sum after an initial period of 1 or 2 years depending on the plan provider. If they were to die during this initial period, all the monthly premiums they have paid would be fully refunded.
Regular Whole of Life Insurance
These types of life cover plans also pay out a cash sum on death but acceptance would depend on your parent’s answers to the health and lifestyle questions. If they are accepted, they are covered immediately and could get at least 40% more life cover for their money, so if they are happy to go through a longer application process, it may be worth comparing life insurance quotes for both options.
Term Life Insurance
Term life insurance or term assurance as it is also known pays out a cash sum on death but only if the person insured dies within a specified timeframe. Your parent would agree the time frames and amount of cover when applying; if they die within the agreed time frame, the cash sum would be paid out however if they die once the time frame has ended, no money would be paid.
These are the different term life insurance options available to your parent.
Level Term Life Insurance
Level term life insurance would pay out a cash lump sum if your parent died within the agreed timeframes. The cash sum is fixed so remains the same throughout the life of the cover.
Decreasing Term Life Insurance
Decreasing term insurance plans also pay out a cash sum on death within an agreed timeframe but the size of the cash sum decreases through the years. Many people choose decreasing term life insurance to provide protection against mortgage or loan repayments which reduce over time, hence why they are also known as mortgage life insurance or mortgage protection plans.
Increasing Term Life Insurance
Increasing term life insurance plans are based on the health of your parent when the plan is taken out however the value of the life cover increases on a yearly basis to keep in line with inflation rates.
Convertible Term Life Insurance
A convertible term policy works in a similar way to level term life insurance – if your parent dies within the fixed period, a set amount will be paid out however they have the option to “convert” the plan which gives them to chance to adapt the life cover as and when they need, without being asked any further health questions.
Renewable Term Life Insurance
A renewable term policy gives your parent the chance to renew their life cover when it expires regardless of their state of health. Similar to level term insurance, a guaranteed amount is paid out upon your parent’s death should they pass away within the term of the policy. There’s usually an age limit with renewable insurance so be aware of the cut-off point.
Many term life insurance policies also offer the option to include critical illness, which provides cover for certain specified illness, however this will increase the monthly premium and will only protect against those illnesses detailed.
Compare to save money
With any type of insurance plan it always makes sense to compare life insurance quotes as prices and levels of cover provided vary. It’s good to know that you can often get better deals online too.
Protect the family jewels
Life insurance is all about providing protection against a risk; in this case the risk of your parent no longer being around. Conversations about dying can be difficult but when you get your parent to think about the impact them not being around anymore will have on the family, their partner, children or grand children, I’m sure they will soon realise they are important discussions to have.