Dear Quentin,
Have any of your readers purchased life insurance for a parent? I have an irresponsible parent in her mid-50s and one-and-a-half irresponsible adult brothers (one brother is only partially responsible).
My mother essentially has nothing — no homeownership, no car and no job. I’m not sure what her health looks like on paper, but she is a smoker and likely has other health issues. She also definitely has mental-health challenges.
My brothers and I are willing to split the cost of life insurance for her, if we can find a policy that would insure her. Does this make sense?
Daughter & Sister
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.
Dear Daughter,
Why do you wish to take out a policy for your mother? Because it does not make sense as a wealth-building exercise.
Given your mother’s smoking history — and current habit — and suspected health issues, your best bet is guaranteed-issue whole life insurance. It doesn’t require a medical exam or even health-related questions, as they are specifically designed for higher-risk applicants like your mom. The trade-offs are more modest payments — typically between $5,000 and $25,000 with $50-plus monthly premiums — and a waiting period of about 2 to 3 years before the full benefit kicks in.
Alternatively, final-expense insurance — also known as “funeral insurance” — is a relatively simple, affordable product that requires the policyholder to answer health questions, and could cost in the same ballpark as guaranteed-issue whole life insurance. If you take out a policy on a third party, insurers will require you to demonstrate “insurable interest,” a genuine financial stake in the person insured (you will likely qualify) and consent of the dependent/insured person (your mom).
Your best bet is guaranteed-issue whole life insurance.
Whole life insurance is one option for a legacy and covering funeral expenses. It provides guaranteed, lifelong coverage with fixed premiums and an ultimate cash value. It’s more expensive than term life insurance and, in your 50s, it could cost $500 a month for one $500,000 policy, or less if you have a smaller payout. Your mother would not need to undergo a medical exam before being accepted for guaranteed-issue or simplified-issue plans.
With term life insurance, your mother would need to undergo a medical evaluation at the start, but not when it expires. It provides protection for a specific period or “term,” which could be 10, 20 or 30 years, and the company pledges to pay a lump sum to beneficiaries if she dies within that time frame. It is, however, expensive, and could cost as much as $300 a month for a payout of $500,000. While it’s often the most affordable type of life insurance relative to the payout, premiums can increase significantly for smokers or those with health conditions.
If she survives the term, the coverage typically ends without value unless it converts to renewable term life; then, the premiums would increase. “With a renewable term life-insurance policy, coverage can be renewed without a medical exam when your term expires,” says Fidelity Life. However, being a smoker could add hundreds of dollars a month to the policy, so it won’t be cheap, even if shared with your brothers.
An indexed universal life-insurance policy with a death benefit and cash component can act as an investment — an alternative to a 401(k). However, many advisers don’t advocate using one as your primary investment vehicle due to its complexity, fees and the risk of underperformance. This type of permanent life insurance, which has a cash value, is also available as adjustable life, indexed life, variable life and whole life. You pay more for the premium and the extra money is invested. Again, you could be paying $350 a month or more for a $500,000 policy.
Any type of life insurance is, for the most part, a long-term commitment. “You need to make sure that you’ll be able to make those payments for the full length of the policy,” says Morgan & Morgan, a law firm with offices nationwide. “Of course, the future is unknowable, but using a reasonable projection of what your financial situation will be over the entire course of the policy, you need to confirm that you’ll be able to afford those premiums.”
Permanent life insurance gets pricey for a smoker.
Other people mulling life insurance like universal life because it comes with a tax-deferred cash value. “Universal life insurance is permanent coverage with flexible premiums and death benefits,” the law firm adds. “This life insurance is best for people who want more control over their coverage and investment component. The pros are that it’s adjustable and can build cash value, but the cons are its complexity and potential for underperformance.”
Back to you: You are considering taking out a life-insurance policy for a person who has not, it seems, taken great care of their health and continues to smoke. Add their mental-health challenges to the picture, and the two other siblings who you would be relying upon to provide the premiums every month. What are the chances that one or both start missing months? It then turns into a game of cat and mouse. Given that you say one brother is not reliable and the other brother is responsible half of the time, it does not seem wise to enter a financial arrangement with them.
This question may be a gateway for you and/or your partner to take out a health-insurance policy on yourself. There was an increase in young people, those in their 20s and 30s, taking out life insurance during the COVID-19 pandemic, as that global health crisis — and knowing other young people who may have had preexisting conditions like asthma pass away — brought home their own mortality. Young people typically qualify for lower-cost coverage than their parents due to their longer life expectancies.
While you may ultimately decide against life insurance for your mother at this time, these are useful conversations to have.
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