Some adult children may be asking themselves a question if they should take out a life insurance policy for their elderly parents. The logic behind this is that if the unfortunate happens and their parents die, they can cash their life insurance payout which would help them and the grandchildren to cope financially. This hard question has two different aspects – moral and financial one. Let’s have a look at them and evaluate its pros and cons.
The moral aspect
Many people would find it morally hard to take life insurance for their parent. And they are perfectly right! It will unavoidably lead to a conflict of interests. On one side there is the possible payout and on the other side are the best interest, care and efforts ensuring their parents live long, healthy and enjoyable life. Getting the life insurance is like betting on their death.
We believe that a child should never suggest to their old parents taking a life insurance. However, some parents may suggest it by themselves, wanting to leave something behind to their children and grand-children.
If your parent are perfectly accustomed to the idea and they come up with it then taking out the policy is OK. That’s the only circumstance when it does not pose any moral issues. The rule here is never suggesting it to your parents! Pushing them into such deal is an absolute no-no. This may ruin your whole relationship and your parents would feel like they are no longer wanted or appreciated as human beings.
The financial aspect
To assess the financial aspect of life insurance for parents, try to look at it from the insurance company’s perspective. No insurance company would ever go into any deal which is not statistically profitable. What it means in simple terms? It’s quite obvious – the premium asked for such cover will be very high (if you can get it at all).
Insurance companies want to make money. They will take your parents current age, access their health and calculate how long they may live. Then they take your desired sum insured and divide it by the number of years they think your parent may live. Whatever number they get, will be your yearly premium. Actually, the premium will be slightly higher since it has to cover the insurance company’s profit as well.
So, is it worth economically? The short answer is: No. Theoretically you may win if your parents live shorter than expected, but equally possible you may lose if they live longer. If they live exactly what the statistics predicts then you still loose, because you will overpay just to cover the insurance company’s profit.
This is the same kind of betting as with Lotto, Casino or any other hazardous game. You may win, but statistically you will most likely loose.
If you like hazardous games and betting then there are other better forms than betting on your parent’s life. As you can see, taking life insurance cover for your parents can be justified neither morally nor economically.
So, what’s the alternative?
Well, instead of paying monthly or yearly premiums to insurance company save the money instead. It’s perfectly morally acceptable. The money saved can be used later either for your parents if they get sick or will require elderly special care. If your parent won’t need the money and die without using it then the money can be divided and given back to children or grandchildren. In fact, you will be running private insurance scheme.
Of course, it may bring you worst financial result than life insurance, but the result can also be better (strictly economically speaking). Statistically however, you are better off without the insurance. When it comes to moral side, then by all means saving is far better option as well.
So, what do you think? Have you got your own experience deciding whether to take life insurance policy for your parent? If so, we would love you sharing your thoughts with us!