There are several types of life insurance coverages to consider. Learn more to see which one may be right for you.
Term life insurance
Term life insurance is the least costly, but only lasts a certain number of years, which is the term. As long as the premiums are paid, coverage continues until the end of the term, or until the covered parent passes away. If your parent outlives a term policy, the policy expires, and no benefit is paid out.
Permanent life insurance
Permanent life insurance, also known as whole life insurancecan provide coverage for your parents for life. Permanent policies are more expensive than term policies, but offer more benefits. Besides lifetime coverage, they offer a cash value component. As you pay your premiums, the policy increases to “cash value,” acting as an investment vehicle.
The cash grows tax deferred, like a 401(k) plan or individual retirement account (IRA). According to Consumer Reports, the average annual rate of return on a whole life policy is 1.5%. While that’s a low growth rate, it does beat the interest rate on most banking products.
Guaranteed issue life insurance
Guaranteed issue life insurance is a policy that does not require a medical exam. The main benefit is that your parents can’t be turned down. This may be a great option if your parents have health problems and can’t qualify for a traditional policy. This option however is generally the most expensive and the death benefit is typically low.
Final expense life insurance
Final expense life insurance, also known as funeral insurance and burial insurance, is a permanent life insurance policy that typically pays for funeral, burial, and other immediate expenses after death. As long as you keep paying your premiums, the policy will not expire. Final expense insurance is usually easy to qualify for and doesn’t require a medical exam. It does however generally require a medical questionnaire and demographic information. The amount ranges from a couple of thousand dollars to $35,000.
Each of these types of policies have their pros and cons. Choosing the right type of life insurance for your parents depends on your financial situation, age, health, and the type of coverage you want.