Before jumping to sales pitches, it’s important to decide whether it makes sense to take out life insurance on a parent, how much coverage to get, who should own the contract, and what alternatives exist. Our team referenced Ontario’s Insurance Act, the federal life-insurance guide, the federal guide to getting insurance and the Canada Revenue Agency’s estate-administration guidance in this article.
Can You Buy Life Insurance for Your Parents in Canada?
You can’t secretly insure your adult parent. They need to take part in the application and underwriting process. The insurer also needs to understand who owns the policy, how much insurance is being requested and why, and review supporting evidence.
Life insurance contracts fall under provincial jurisdiction. For example, in Ontario, if the parent consents in writing, the contract won’t be considered void for a lack of insurable interest.
Consent, however, doesn’t show whether buying life insurance on your parent makes sense. To decide, determine what financial obligation or shortfall would result from their death, net of existing assets. Also make sure you can keep up with the premiums.
Should I Get My Parents Insured?
Whether or not you should get your parents insured depends on your needs and theirs. Some people may get life insurance for their parents so the death benefit can cover their final expenses and pay off outstanding debt. However, some people may choose not to do so because the cost of insurance outweighs the potential final expenses when their parents pass.
Calculate the Need Before Choosing a Product
A useful estimate is the costs and losses resulting from the death, minus savings set aside, existing insurance and other available resources. Do not automatically include every debt shown on your parent’s statements or medical and long-term-care expenses incurred while they are alive.
For questions involving business, estate tax, ownership or trust calculations, consult your lawyer or tax professional. MyChoice cannot offer legal or tax advice.
Separate the Four Policy Roles
| Role | What the role does | Decision to document |
|---|---|---|
| Person insured | The health of the parent, as well as supplementary evidence, will be assessed. The life of the parent is insured. | What information and examinations are required? |
| Applicant or policy owner | The individual who controls the policy, subject to the contract and the rights of any irrevocable beneficiary. | Who can change the beneficiary, borrow, assign, surrender or cancel? |
| Premium payer | The party that pays for the policy is not necessarily entitled to ownership rights. | Who is responsible if payments stop or rise? |
| Beneficiary | The beneficiary is entitled to receive the death benefit when the insured parent dies. | Is the designation revocable, irrevocable, contingent or directed to the estate? |
Who plays which role can vary. For example, if siblings agree to split the premiums, document who owns the policy, what happens if one sibling stops paying, and how the insurance is supposed to be used. Private agreements do not override the beneficiary designation or insurance contract.
Read More: See How Contingent Life Insurance Beneficiaries Work
Why You Might Need Life Insurance for Your Parents
These reasons should be measurable. If you’re considering life insurance for funeral expenses, review funeral costs, personal savings and other ways to pay, including prepaid arrangements.
If a parent supports a dependant, work out how much monthly income would be needed and for how long. If the insurance is intended for estate taxes or liquidity, have a projection in writing and update it as values and laws change.
Remember that the death benefit is paid after your parent dies. It won’t cover medical expenses, home care or long-term care while they’re living. Critical illness insurance, long-term-care insurance, savings, care planning or government benefits may help with those expenses.
Types of Life Insurance Coverage for Parents
| Option | May fit | Check before buying |
|---|---|---|
| Term life | A temporary need with a definite endpoint. | Initial term, scheduled renewal premiums, conversion privileges and the maximum renewal age |
| Permanent life | Long-term coverage for estate or final expenses, provided the premiums remain affordable. | Guarantees, cash value, payment period, surrender terms and ownership control |
| Simplified issue | Parents who would rather answer fewer medical questions and avoid a long application process. | Eligibility questions, maximum coverage, cost and benefit restrictions |
| Guaranteed issue | A parent who meets the basic eligibility requirements but cannot qualify through another route. | Issue age, maximum coverage, premium period and any graded or waiting-period death benefit |
“Simplified issue” and “guaranteed issue” are underwriting routes. “Final expense” describes the intended use of a small permanent life insurance policy rather than a separate type of insurance.
Read More: Compare Term and Whole Life Insurance
Read More: Explore Life Insurance Options for Seniors
Things to Consider When Buying Life Insurance for Parents
Just like buying life insurance for yourself, there are considerations when buying insurance for your parents. Here are some important considerations that you should think about before making the decision:
Financial independence:
If your parents earn their own income or are otherwise financially independent due to government benefits for seniors or other means, they may not need life insurance. But if they have dependents who can’t earn money, insurance might be wise.
Life insurance cost:
Insurance protection can be expensive for the elderly and those with health conditions. Make sure the benefits of having life insurance outweigh its costs.
Insurance type:
Different people have different life insurance needs, so choose the policy type that benefits your parents the most. Generally, your parents are eligible for most types of life insurance recognised in Canada.
Health and age:
As your parents get older, life insurance will get more expensive. While there are options for senior life insurance protection, like simplified or guaranteed issue policies, they may be more expensive than other policy types.
Policy ownership:
Discuss with your parents to determine who holds the policy and pays for it. Make the decision based on a mutual decision between you and your parents.
Tips When Getting Life Insurance for Your Parents
Buying life insurance with your parents is similar to buying one for yourself. However, there may be some differences along the process, and it’s best to bring your parents into the conversation instead of making a one-sided decision. Here’s how you can bring them into the discussion:
Get your parents’ perspective:
Talk with your parents about your plans to buy life insurance for them and find out what they need from the policy, if they need one.
Offer insurance as a choice:
Remind them that life insurance is optional, not a requirement. This will ensure they don’t feel like they’re forced to be insured.
Choose the right framing:
Focus on what’s important for your family. For instance, they’re worried about leaving their family with debts when they pass, you can say that insurance can help them repay those debts.
Involve them:
Invite your parents to share their concerns about getting insured, and update them on every major step in your insurance research and purchase process.
Support their decisions:
Provide support and love whether or not they choose to get insured.
Before Changing or Buying Coverage
Don’t terminate existing coverage until the new policy is issued, delivered, paid, confirmed to be in effect and reviewed. If your calculations show no shortfall, consider whether it makes sense to keep the existing insurance or explore another way to cover the cost.
Read More: Use the Life Insurance Coverage Review Guide