Buying life insurance for your parents: Is it wise? Is it wrong?

I recently received an email from a reader that I thought would be perfect for discussion, because my hunch is that there are others who are dealing with or have dealt with a situation like this. I promised that I would try to get some opinions from the CPF audience, so if you have any thoughts or opinions, please share them in the comments.

Here are the important parts from the email I received…

I have a question that I’m wrestling with, which I’m hoping you can help me with. Recently my siblings have been talking to my mother and I about taking a life insurance policy out for her, in the case that she passes, a sum of money could be left for her kids and grandkids. The idea would be that we would all co-fund this insurance with her and them.

I’m struggling with this on two levels.

  • Financially: I’m not sure it is a smart financial decision. My mother is in her early sixties and in relatively good health. The prospect of paying life insurance for the next 25 years or so is not very appealing.
  • Morally: I feel like I’m making a bet on her death… a self-serving action. My mother is low income and I would rather put money away in the event that she could not care for her self (healthcare, long term living assistance, etc.).

I emailed you because your website seems to strike the balance between financial and moral wisdom. Please advise me, this topic is likely to come up over the holidays.

My thoughts

You know how sometimes you immediately have a strong opinion about something, and other times you really have to work at it to decide what you think about something? Well, I have been thinking about this for a while and am having a hard time deciding what I think – so I guess I should just start writing and see what comes out…

I think a few important questions to ask are…

What does the mother think about all this? Is she in full support of it because she wants to leave some cash to her heirs, or is she being bullied into it?

If she is fully behind the plan, it could be viewed as similar to her taking the policy out herself, except that she needs the help of the children to pay for it – which is fair, since they will be the ones who will benefit from it anyway.

What I don’t like about it is the “gambling on her death” aspect. If the children are really motivated to take out the policy solely for their own monetary gain, it seems like it could create a little bit of a conflict of interest between wanting your parents to live a long healthy life and wanting to get a fat check.

Is it a wise financial decision?

To me it seems that there is just about an inverse relationship between it being a wise financial decision and it being morally acceptable. If she was in poor health (but was still able to be insured) it would probably be a much better financial decision because your ROI would likely be a lot greater, but I would feel pretty shady if I took a policy out in those circumstances.

On the other hand, if her health is great, and you would have to pay into the policy for 25 years (likely with a very high premium) it seems that it wouldn’t be nearly as good of an investment.

Saving it for her instead

Personally, I like the idea that was mentioned of saving it up for her instead. With her not being very well-off financially it seems that saving up for medical expenses, long-term care, etc. would be a beneficial plan. It would benefit her if she got to a point where expenses got out of hand, but it could also benefit the children by minimizing the possibility that they would have to provide financial assistance. Then, if the money saved was never used, it could be divided back up among the children.

All in all, I think I would prefer to use life insurance to provide for family who can’t adequately cover themselves. Assuming the children are all on their own two feet financially, it would be something I would probably pass on.

We want to hear your thoughts – have you taken out a life insurance policy on your parents? Would you?


















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22 Comments
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  1. Christine

    Are all the children grown and able to take care of themselves?

  2. Good take Bob, in theory I agree that setting the money aside for the mom would be the better course, but in practice it gets tangled.

    H0w many kids are there? Who would manage it? Would a trust need to be set up? (Now we bring in a lawyer.) Does everyone contribute an equal share? If not, is there a pro-rata share distribution on death? Or on withdrawals by mom (More work for the attorney). Who tracks and maintains the share balances prior to death? What if one sibling wants out and wants “their” money back?

    The human factor here is mind boggling.

    As far as the insurance, it will be expensive at 62, and what happens if one or more siblings decide to bail in five years when they realize that mom has another 20 years left?

    There’s no easy answer here. I think I’d take none of the above. These “kids” need to be primarily concerned with who will take care of mom (and how) and less occupied with how to benefit from her death.

    • @Kevin,
      that is a good point – it definitely could get messy. I guess my thought would be that each sibling would save individually for the possibility of needing to help – but I agree it is far from a perfect solution.

  3. Personally, this is pretty cut and dried. Life insurance should cover “final needs,” debt retirement, and income replacement for your dependents. The older you get, the less you SHOULD need.

    Children saving to help their parents (or anyone else) is a sound decision. Trying to ensure every sibbling contributes their fair share is not worth fighting over. Do what’s right for you and get on with your life.

    The most important inheritance should be great memories .

  4. Sounds like the mom in this situation would be better served by a long-term care insurance policy than a life insurance policy. LTC costs average $6000-$8000/mo nowadays, so a policy to help cover such costs would help the mother as well as the children (unless they don’t mind having her in a facility that takes Medicaid). Or, they could just put the money in a high-yield savings account to cover unforseen medical expenses. Wouldn’t give the same amount of leverage, though. At this mom’s age, life insurance would mainly be used for tax-free wealth transfer or to cover future estate taxes. Given that she was described as “low income”, though, it doesn’t sound like she has a need for either. In which case, having the children contribute to a life insurance policy would be morally suspect, since they’re just leveraging their money to get a higher payout upon their mother’s death.

  5. We all know that each of us WILL die eventually so the question really states, “…WHEN she passes, a sum of money could be left for her kids and grandkids.”….” It sounds like a scheme to quickly increase their own personal wealth.
    If the children are in a financial situation where they need the money…they won’t be able to pay for the premiums anyway.
    If they are able to afford the premiums, why not put that money into their own savings account for their own future use.

    I agree with DARREN about the purpose of life insurance. That is to protect a persons dependents from financial difficulties when they die. It doesn’t sound to me like any of the children in this case are dependent upon their Mother. She would only need enough insurance coverage to cover any costs associated with her death. These costs could be anywhere from $10,000-$30,000 depending on circumstances (or more).

    Instead, why not pay for those post-death expenses now. Many funeral homes have pre-paid packages with monthly payments. While it sounds morbid, think of the advantages. It allows the “dying” person to make their own decisions about their post-death care. Whether they want to be cremated or buried, which coffin they want, which burial plot they want, etc. Knowing that their loved one got the exact care they wanted is a wonderful gift to give your grieving family during a very stressful time.

    If that is to emotionally difficult to do at the time, such decisions should still be talked about so that the persons wishes are known. Then another helpful route to take is long term care insurance. But that could end up to be a waste of money if the person died before needing the long term care.

    Anything other than that is predatory and morally wrong.
    I hope that helps.

  6. Assuming that we’re only talking about taking out an insurance policy for the reason of the children getting money when your mother dies, and that if this money wasn’t spent on this insurance policy it would be kept by the children and spent on something for themselves/their own family….

    I did some math. I went to Zander Insurance (zanderins.com) and found what it would cost to get a 20 year policy for a 65 year old woman. For 100k worth of coverage it would cost 1535 a year, I assumed there were three of you (just a guess) so I called it 500 per child per year, with each child receiving roughly 33k on your mother’s death.

    Then I went to Dave Ramsey’s website and used a financial calculator to see what 500/year invested at 10% would be, and in 20 years it would actually be about 33k. So financially it breaks down to a point where if she lives less than 20 years you make out better with the life insurance, if she lives close to 20 years you about break even that way, but if she lives even a day past the policy you end up with nothing.

    So with that being said I wouldn’t do it. First off I never want to be in a position to say “if mom doesn’t die this year I’m out 10k”, that’s creepy. If I’m making an investment I’d like it to be an investment, not a gamble on someone’s life. If you just invest the money you guarantee there will be something there. Also, you made it sound like she’s going to be throwing money into this herself, again if she wants to leave money to the family she would be better off just investing it. I think you should do what others have said and get her long term care insurance, so the money she currently has does not wind up going to pay for her long term care.

  7. I personally think they should go with the policy. I know when I pass I would want my kids taken. And in case I don’t have the assets to do that life insurance is a great substitute.

    Just my thoughts

  8. This whole topic makes me shudder. The kids that went to their mother to suggest this should be slapped. Good cotton picking grief. That would be a great holiday meal,” Hey Mom how you feeling today?” “Hope you die in 20 years so we can all sit on our lazy butts and then make money.” I am appalled we are even talking about this. Come ON!

  9. Bob thank you for being responsive to your readers!!!

    To all contributors, thank you for your sound advice. God bless you all and keep making good financial decisions based on our Lord’s principles.

  10. I’m jumping in late as a bit of a devil’s advocate.

    Let’s assume parents have kids at 30 just because it’s easy and a round number. Then I would assume that in today’s world there’s a really good chance that a 65 year old could make it to 90. If she’s 65 then it’s 25 years.

    Now, you have an investment opportunity. It is a guaranteed sum of money to be paid out to you in 25 years. You are going to contribute to it consistently on a monthly basis much like your 401k. Except this money will not be subject to market fluctuations. In face, you can’t loose money. You will give up some gains in order to get this benefit. You also will be able to get this money completely tax free. No rules, stipulations or taxes on this money. I would prefer that over a 401k, wouldn’t you?

    When set up properly this account start off high and grow gradually. If things go bad you’ll have access to the monies but if you don’t access it you will be able to enjoy the benefits above. Regardless of what this account is would you do it financially?

  11. Mike D.

    @Evolution of Wealth:

    I think you’re contradicting yourself a bit there. You say there’s a good chance a 65 year old will make it to 90, but then go on to say that it’s guaranteed that the policy will be paid. Remember that a policy only gets paid if the person dies while the policy is in place. So if you’re saying they get a 25 year policy and there’s a good chance she lives to 90, what about 91.

    If she lives to 91 then by that time the policy has expired, and when it expires it is worth nothing. So you aren’t guaranteed money remember, it’s all or nothing. In my opinion it’s a bigger risk than the 401(k), because of that. And of course if someone is sick and you think “well of course she’ll die before then” the insurance company knows that as well and your rate will be very high.

  12. Okay…before I wrote the first comment, what I should have said was, how could you ever consider this with term insurance? This strategy can not be done with term insurance that would just be plain stupid. When I say guarantee I’m talking about a properly designed permanent life insurance policy. Term insurance should be completely removed from this conversation/strategy.

  13. Skipper

    This is a simple IRR calculation. What kind of return can you get by purchasing the insurance, and how does it measure up to the return you could currently get in the investment marketplace? The lapse protection guarantee UL policies are a great for this purpose. If the kids are worried about one of them not being able to afford it down the line, each child could purchase their own policy and be responsible for their own funding. This typicall works best with insureds who are a little older (70 or so), but run the numbers, look at the IRR (provided on most illustrations) and see where you’re at.

    I wouldn’t worry a lot about long term care insurance. There is a definite “sweet spot” for this type of sale (too many assets not to protect, but not enough to self-insure), and it sounds like your mother doesn’t fall into this category. She is low income, and I’m making the assumption – correct me if I’m wrong – that she is also “low asset”. If that’s the case, the nursing home will take what she has, and she will then qualify for Medicaid.

  14. EJDickensRN-BSN

    I’m a little late responding as I am just seeing this post for the first time. I thought that many important factors were addressed. I was pleased to see that someone thought of the possibility of contributing to a long-term care insurance policy. Could they not contribute to both? In terms of the “moral dilemma”, I think that most would agree that it would be morally wrong to purchase a policy hoping that your mother dies sooner rather than later. However, I don’t think this was the mindset of this family. I think that they are praying that mom continues to live a long and healthy life but they are preparing for the possibility of her uneventful death.

    I noticed that not many people focused on the mother and her implied motivation to agree to such a proposal. Firstly, the post mentioned that the mother was older and not very well-off (financially) so one must consider the psychological implications. As per Erikson’s stages of development, the mother is in the stage of generativity versus stagnation and she will soon enter the stage of ego integrity versus despair. In the former stage, one is concerned with contributing to society and guiding future generations. Said person is either pleased or displeased with his or her accomplishments in this area. In the latter stage, one looks back on said accomplishments and judges one’s level of productivity throughout the lifetime. One is either happy with productivity or in a state of despair caused by regrets and unmet goals.

    Is it not probable that the mother did not have the opportunity to provide for her family in the way that she wanted to? Or maybe she just does not want future generations to go through life with a financial situation similar to that of her own. Maybe this plan would be a way for the mother to achieve that which many struggle to obtain each and every day … financial freedom. Also, many people from the mother’s generation (this issue still exists today) were unable to attend a college or university because of a lack of financial resources and it sounds like there may be a sizable family unit considering the mention of grandchildren– perhaps the mother wants to make sure that her grandchildren have the opportunity that was not afforded her.

    Finally, many respondents chose to focus on the supposed moral dilemma. I think that many have a flawed concept of the purpose of an inheritance. Many think that we are just supposed to bury our parents, pay all of the bills and break even. I’ve actually heard people say things like, “I’m not leaving my children anything but bills” or “I’m going to spend every penny while I’m here because I cannot take it with me”. I chose to pay for a sizable life insurance policy which I started at an early age because I don’t want my heirs to “break” even. I would like for my heirs to be rich when I leave this earth but I’ll even settle for them being financially comfortable. Peter Buffet, son of Warren Buffet (investor, entrepreneur and philanthropist– ranked as the world’s wealthiest person in 2008) quoted his father regarding his views on inherited wealth. He said his father’s view was that he would give his children “enough money so they would feel they can do anything but not so much that they could do nothing.” We have to think of creative ways to break the cycle of financial bondage and start contributing to future wealth instead of poor financial health.

  15. Clint Hall

    Just because she is in good health now doesnt mean that 6 months from now she will be. Just being brutally honest. Many dont realize that the time to get a policy is when an individual is in good health. If you think premiums are expensive at 62 and healthy, imagine what they are like if she does develop health problems.

    In todays age of flexable policies there are policies that are life policies but include riders where if she is diagnosed with terminal illness a certain percentage of the face amount can be used for LTC. I think many of the responses are taking her current good health for granted. Do you know many at age 62 who have improved health wise? Again when your in good health is the time to do a policy not once health problems develop.

    As for approaching her about the policy? The average funeral these days runs between 8-14k. If you have a good relationship with your mother you can have that conversation in a civilized way. The brunt of expenses will be passed on to the survivors. Its not a fun subject to discuss but one that is needed to have.

    Many policies also offer a reduced paid up amount based on the number of years you have paid. If she lives a long and prosperous life and you have paid on the policy ten years you can take the policy reduced paid up for an amount below the original face value. Your policy will show you a table with those exact amounts.

  16. Hey folks…

    You cannot get “rich” off the death of low income parent. If you want a policy over $100K, insurance companies make you prove that you would undergo considerable financial stress if your parent were to die… for example, maybe you are handicap and your parents fully support you.

    In the aforementioned case, the mother is low-income therefore there could be no “fat check” to be gained from her death. In addition, the children of a deceased parent are often lett with the responsibility of paying that person’s debt. So, if your parent is has a mortgage, $100K in credit card debt, a car payment, and whatever else – the burden of that debt are the heirs of the deceased.

  17. well my thing is, my mom and dad will probably never be able to retire. due to never setting up a retirement plan. Neither one of them has a life insurance policy. My dad actually brought it up to me the other night. I would like to take a policy out on both of them just to make sure that if one of them passes before the other, they will be able to make it on their own. my dad has diabetes and my mom WAS a lifetime smoker. My dad is the only one who works between them and if something happens to him, how are they gonna be able to pay bills and such. thats why i want to. Im not worried about funeral expenses. my dad will receive a militart burial for being a veteran. so is that a logical reason? i just want to make sure my parents who spent THEIR money taking care of me and providing for me are taking care of. is that wrong of me?

  18. I think that the life insurance policy is a great investment for the kids if they can afford it and it doesn’t affect the relationships with the family. If I can help my children financially with my death then why not? Especially if you are leaving debt behind this makes a lot of sense so the kids can take care of it.

  19. samantha

    We are currently paying for the parents life insurance. From the childrens point of view it is a joke no offence. We are trying to save for our first home and plan our first child however instead we are paying for the parents to be children again. Sorry this touches a nerve as my parents have get this actually planned for retirement. They are not well off but they can live comfortably. The idea of paying money makes me feel sick. I do feel like im waiting on my partners parents to die and it is wrong. The part is where we get guilt tripped into it. We feel scared that if we stop paying then we could loose the respect of the in laws. For example we already get reminded about how the other one will not have the money to live when the other one dies… like seriously? Why dont they just get a banner and post it on today tonight? Ok the bit that steems me is that they specificly planned to not plan their retirement. So basically if you plan not to plan your retirement be ready because the kids may get money when you die but more importantly people are saying you bleeping selfish, stupid, idiots. I dont want money nor does my husband. We just want them to grow up and stop putting our life on hold. Time is worth more than money at least to some. SHAME!

  20. I am trying to help an acquaintance with her finances and found this post. She is 69, divorced, has health problems and has been turned down by some insurers. Because she receives public assistance, she cannot have whole life insurance; she has one guaranteed issue term policy and several accidental death policies, although she is rarely out of the house or driving. She needs insurance for funeral costs and to pay off some substantial credit card debt, but I am encouraging her to not overinsure to provide a windfall for her children, as the premiums are a drain on her overextended budget and the likelihood is that most of these won’t pay off. She is a Christian, but I have been trying to help her have a balanced view of insurance, placing her trust in the Lord first and not her policies.
    She just found that her term life will not cover her after age 80, also the case with a graded death benefit term insurance she was considering. Should the child who is her beneficiary and who is most responsible take out a policy on her if he is more able to afford it, mainly to cover the remaining debts and funeral expenses if she outlives her present term policy? I would really appreciate your advice.

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