How To Get Life Insurance On A Parent 2024

How To Get Life Insurance On A Parent 2024

I want to start this blog off with a very quick and clear point, there are certain rules and procedures about setting up life insurance. When it comes to arranging life insurance on another person such as your parent, it is often possible, but just because it’s possible doesn’t mean it should happen.

Within life insurance there is a specific term known as ‘insurable interest’. This means that for a life insurance policy to be valid there needs to be someone that will be financially worse off, if the person dies. Life insurance is all about protecting the person that is going to struggle financially upon the person’s death. Usually this a person insuring themselves to provide financial security to a partner or their children. It can be children arranging life insurance on their parents, it’s not as common, but it can be done and valid in some situations.

Safety First

When you use an adviser like us we have specific safeguarding procedures in place, to make sure that nothing untoward is happening.

As an example we will want to make sure that there is a reason for you wanting the life insurance. Are you worried about funeral costs, inheritance or gift taxation? In these situations we can often help and will work towards the liabilities that you might face. But let’s say that you ask for funeral cover of £200,000 for your parent, that’s going to raise a few questions, because funerals do not cost this much.

As an adviser firm we will want to make sure that your parent is aware that you are arranging the life insurance on them, by speaking with them and making sure that they agree to the insurance being arranged. There are times where your parent may not be able to speak with us due to their health and if this is the case we will need for there to be a power of attorney in place, for us to arrange the insurance at a level that we feel is appropriate.

If you are planning to pay for the life insurance premiums yourself we would also need to complete identity verification for yourself and your parent(s).

Funeral Costs

In the UK funerals do not cost huge sums of money, if you plan on £10k that’s usually more than enough. Funeral costs can be covered in a number of ways:

• Savings – it can work well to save money into a specific account that you set aside as covering the funeral costs
• Funeral Plan – these are not life insurance policies, what you do is pay a set amount of money to a funeral provider who then agrees to cover the funeral costs when the person dies
• Term Life Insurance – this is an insurance policy where you choose how much life insurance you want to cover the funeral costs and how long you want the policy to last for. It is not an ideal solution for funeral cover as the policy has a set end date which is usually no later than age 90.
• Whole of Life Insurance – this is a life insurance policy that lasts for as long as you live for and is ideally suited for things like funeral cover
• Over 50s Life Insurance – this is a life insurance policy that can work really well for people who have medical conditions, that mean they cannot get whole of life insurance, the policy lasts for as long as you live but they are usually more expensive than whole of life insurance

Inheritance Tax

Inheritance tax is paid when your estate is more than a certain amount when you die. A married couple usually have between £650k and £1m before IHT would be due on their estate, depending upon their residential status. For a single person it is between £325k and £500k. Inheritance tax is currently 40% of the value of the estate above these levels.

• Savings – in an ideal world you would have enough savings in place to cover any inheritance tax liability that you might face when a parent dies
• Term Life Insurance – if both of your parents are alive you would want to arrange a joint life second death policy for IHT cover, this insurance can work but it’s not ideal as it usually won’t last past age 90.
• Whole of Life Insurance – this is the insurance that you want for inheritance tax protection, again a joint life second death basis is needed if both of your parents are alive
• Over 50s Life Insurance – you can potentially arrange this for inheritance tax cover but these policies usually have quite a low value, so you might need to arrange multiple ones to cover the potential tax charge

Gift Tax

Gift tax is a really interesting area because so many people do it without realising it. At the moment you can gift up to £3,000 to one person each year without it being classed as a gift. There are some exceptions to this but I’m not going to focus on that here. Parents that are gifting money to buy a car, a deposit on a house etc are giving gifts that can be taxable, without even realising it. Tax on a gift ends after 7 years from the date that a gift is made and the potential tax reduces over this time.

• Savings – if you have been given a gift it’s quite likely that you have needed the money and won’t have the cash saved to cover the potential tax
• Gift Inter Vivos – this is a specific life insurance policy that mirrors current gift rules, it lasts for 7 years and decreases over time to match the tax that would be due on the gift if the person died, you would arrange this on a single life basis as a gift is technically made by one person
• Term Life Insurance – you can use a single life term life insurance policy over 7 years to cover a gift tax liability, you would ideally want it on a level term basis and then reduce the sum assured after years 1, 2, 3 and 4 to match the reducing tax liability, you could set this policy up as a decreasing life insurance policy which would be cheaper but the value of the insurance will not always match the tax liability
• Whole Life Insurance – this will cover a gift tax liability, but it is not specifically designed for this and you will paying a much higher premium that you need to
• Over 50s Life Insurance – you can potentially use this to cover a gift tax liability if you find that you cannot arrange a gift inter vivos policy or term life insurance due to your health, you can then potentially cancel it after 7 years once the liability has ended

Our award winning advisers will talk you through your insurance options and help you get the life insurance that you and your family need.

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