A friend of mine is engaged and will marry soon. The fiancé’s dad passed away recently without any life insurance. This put the family in the position of having to pay for all of the funeral related expenses. With the average cost of a funeral running $10,000 or more, this can put a financial strain on the surviving spouse and adult children at a time that’s emotionally difficult.
My friend’s parents don’t have life insurance either and after watching what her fiancé and his family went through, she and her siblings decided to do something about it. They asked me to review life insurance options for their mom and dad who are around 70 years of age. I gathered the information I needed on the parents to determine what life insurance options are available and asked them the three questions I ask anyone looking for life insurance:
- What do you want the life policy to do?
- How much will it take to accomplish that?
- What will fit within the budget?
In this family’s case, there is a fourth criteria which is, how long do you want the policy to last? I work with life insurance companies that provide term options for people up to age 75, however, if the life expectancy is longer than 10 years then the parents may outlive the policy. The siblings want the policy to provide for funeral and any other expenses that may be present so that narrowed my focus to permanent life insurance options. The two I reviewed with them consisted of a whole life policy and a universal life policy.
Whole Life: A whole life policy provides a level term with a guaranteed death benefit for either a specific period of time or the life of the policy. There are no surprises! The whole life plans I quoted for my friend’s parents consisted of a $25,000 and a $50,000 policy from two different companies. Both companies would run the policies to at least age 120, but handled the payments very differently.
The policy with the lower premium actually collected payments through age 120. For $13 to $91 more a month, the second company only collected payments for 10 years. The policy would be paid in full at that point and then the policy would run through age 121. I recommended the second option since the policies would be paid for in 10 years which may help their budget if they are retired and living on a fixed income.
Universal Life: Universal life policies are typically a blend of both whole life and term life. The ratio of whole life to term life in these plans determine how long the policy runs. A higher premium ensures the policy remains in force for a longer period of time while a lower premium provides for a short term savings but may cause the policy to end sooner than desired.
The universal life options begin with a higher benefit level of $100,000. The monthly premium was a little less than the $50,000 whole life premium but there was a significant difference in one key area. One company provided a guaranteed death benefit through age 105, while the other provided a guaranteed benefit for 10 years. I recommended the one that guarantees the benefit through age 105 which cost about $13 more a month.
Any of these options will help the kids accomplish the goal they have. Which one the parents pick will be determined by their budget (the adult kids may help) and the level of benefit (how much coverage) they believe they need. It will also be largely determined by how long they think they’ll live.
Do your parents have their own life insurance? Now is a great time to find out, as well as to learn what they want when that time comes for them. If they don’t have life insurance and you don’t want to be completely responsible for their funeral expenses, you can get a life policy for them. That would be a gift both of you would appreciate. Share your thoughts, experiences, and questions with me in the comments section of our blog or on our Facebook and Google + pages. I’d love to hear from you!