How Much Life Insurance Can I Buy For My Parents or Grandparents?

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There is a misconception that anyone can purchase any amount of life insurance they’d like. 

If you’re over age 70 and you want more than $25,000 of life insurance, you may have a hard time finding a company with good rates that will agree to offer it.

Getting small amounts of life insurance up to about $25,000 to help pay for final expenses is not usually a problem for most people, and little or no justification is usually required for such low amounts.

To qualify for more than $25,000, you’ll need to indicate why the higher amount is needed.  

According to life insurance companies, life insurance is not to be used for wealth creation. The insurance companies will never, knowingly, allow anyone to profit from someone else’s death.  

The insurance companies always require justification on the need for the amount of life insurance you’ll want to purchase, and there must be an “insurable interest” between the insured and the beneficiary.  

For example, if I want to buy a $500,000 policy on my uncle who is 72 because this could be an excellent investment for me, it’s highly unlikely I’d be able to convince any insurance company to offer the coverage.  I’m going to have to explain to the insurance company why the $500,000 is required and how my uncle’s death would cause me a financial burden that requires that amount of life insurance.  If the need cannot be explained, the insurance company will not agree to offer any coverage.  

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The older you get, the more strict the insurance companies are regarding the maximum amount of life insurance they’ll allow you to purchase.   

They’ll base the maximum amount they’ll offer on a multiple of the person to be insured’s income.  It doesn’t matter who is paying for the policy (son, daughter, etc.), it is the income of the person who’s going to be insured that matters.

Income can be all income received, either from social security, pension income, and/or current employment.  

Below is the approximate norm for maximum amount of life insurance that insurance companies offer based on multiple of the person to be insured’s annual income:  

Age                  Multiple of Income
56-60                       15 x’s
61-70                        10 x’s
71-79                         5 x’s
80+             Individual Consideration 
 
The average social security income for retired people is $1,234 per month or $14,808 per year. If you’re 71 or older and this is your only income, the maximum amount of life insurance you may be able to buy is $74,000, or five times the $14,808 annual income.   
 
Even in the scenario above, if the beneficiary of the policy is not going to be the spouse of the insured person who will have a direct financial loss when they lose their spouse’s social security income because of death, the insurance company may not agree to offer the full $74,000.  
 
If a child or grandchild is going to be the beneficiary on a policy insuring their parent or grandparent, they may only be able to purchase a smaller amount like $25,000.
 
 
While it may be smart to buy life insurance on your parents, grandparents, or for any senior citizen if you may be responsible for paying for their final expenses, it’s not always easy for someone else to buy larger amounts of life insurance on any senior’s life.
 
I’ve seen many cases where insurance companies would not agree to offer any coverage because the person to be insured has no income or a very small annual income and a more significant financial loss to the beneficiary could not be established.
 
A good strategy to get your parent or grandparent life insurance is to have them apply for the coverage assuming they will be the owner and payor of the policy.
 
Then after they’re approved and you decide to accept the policy, you can make the payment to get policy placed in force. 
 
After the policy is in force, you can make any policy changes…i.e. you can change the policy owner, beneficiaries, billing address, etc.
 
Let us know if we can help you.  Feel free to click the link above to get accurate quote, you can click here to email us or you can call us at 1-800-380-3533