Life Insurance for Grandparents: Pros, Cons & How It Works

Updated

When we’re growing up, our grandparents are there to love, protect, and maybe even spoil us a little. But, as they get older, grandparents sometimes need help putting a plan in place to help cover their end-of-life expenses, especially if they haven’t put a plan in place over the years to set money aside. 

Jump ahead to these sections:

Buying life insurance for grandparents is a way you can make sure that their final needs can be taken care of without anyone having to go into debt. It protects everyone financially and can provide your grandparents with peace of mind knowing that they won’t ever be a financial burden to family members. 

Let’s look at some questions grandchildren often have concerning buying life insurance for a grandparent, such as if it’s possible even to do it, how much it costs, what life insurance companies offer this type of insurance, types of life insurance for grandparents, and more.  

Can You Buy Life Insurance for a Grandparent?

The short answer to this question is “Yes,” but some fine print comes with buying a policy for grandparents. 

First, something called “insurable interest” must exist between the grandparent to be insured and the beneficiary of the life insurance policy. That means that the beneficiary would experience some type of financial hardship if the insured grandparent were to pass away, like having to pay for burial and other final expenses or pay outstanding debts they would become liable for.

Life insurance companies require that an insurable interest exist to prevent someone from buying a policy on a grandparent to profit from their death. 

For example, a grandchild applying for a $400,000 policy on their 75-year-old grandfather could be seen as an excellent investment, but it’s improbable the insurance company will approve the application. The grandchild would have to prove their grandfather’s death would cause a financial burden that required that much coverage, such as if they were business partners or that amount of insurance was needed to pay estate taxes. 

Second, if you’re going to buy life insurance for your grandparent, they must know that you’re taking out a policy on them. The application for life insurance must be signed by your grandparent, physically, verbally, or by electronic signature. 

In most cases, the chances of a grandparent being unaware that someone has applied for a life insurance policy on their life are very slim. In addition to the grandparent needing to sign the application, most life insurance companies require that questions concerning health history are answered, and a medical examination be performed. Also, many insurers require that the person to be insured speak with a company underwriter before an application can be approved.  

Even though all of these requirements would make the grandparent aware a policy was being applied for with them being the insured person, some individuals have still attempted to do this. This has ultimately led to criminal proceedings against the grandchild and the claim at the time of the grandparent’s death being denied. 

What Types of Life Insurance Can You Buy for a Grandparent?

“Life insurance” is a very general term. There are different types of life insurance policies that function differently and are designed to meet different needs. 

One way to help you pick the right type of policy is to ask yourself, “What will the death benefit be used for?” The answer to that question will help you decide which type of policy you need. 

For example, if the policy's purpose is to pay for your grandparent’s burial and funeral expenses, a final expense policy would be an excellent choice.

However, if the death benefit is intended to pay off their mortgage balance, a term life insurance policy would be ideal.

A professional life insurance agent can help you decide which is the best type of policy for your situation. When they visit with you, they’ll likely talk about three types of policies grandchildren buy for their grandparents:

  • Whole life insurance
  • Term life insurance
  • Final expense insurance

Let’s look at each of these in detail. 

Whole Life Insurance

  • Age availability: 18–85 years of age for adults. Child whole life policies also available 
  • Typical minimum face amount: $50,000

Whole life insurance has two elements: a death benefit and cash value.

The death benefit, also known as the face amount of insurance, is the amount of money paid to the person named as the beneficiary on the policy when the grandparent passes away. It is usually paid in a lump sum and is received tax-free by the beneficiary.

Part of the monthly premium paid on a whole life policy also funds the policy's cash value component. A portion of the premium is deposited into the policy's cash value, which operates much like a traditional savings account. The money in the account earns interest at a rate determined by the insurance company, and grows tax-deferred. 

Premiums for whole life insurance policies remain level throughout the life of the policy, and the policy will remain in force for the life of the insured, as long as the policyowner pays the premiums. 

Whole life insurance policies for grandparents are among the most expensive types of policies a grandchild can buy. The premiums can be cost-prohibitive as the grandparent gets older, and it can also be more challenging for a grandparent to qualify because of declining physical health. 


Download your free end-of-life plan.

Enter your email below to get your free checklist in your inbox. 

Term Life Insurance

  • Age availability: 18–80 years of age for adults  
  • Typical minimum face amount: $50,000

Many people prefer term life insurance because the cost is lower than whole life insurance. Every dollar of the premium paid, other than fees and commissions, is applied toward the death benefit's cost; term life insurance accumulates no cash value. 

Term life insurance is temporary life insurance – it’s intended to stay in force as long as there is a financial need for it. For example, a grandchild might buy a 10-year term life insurance policy for a grandparent who has ten years left to pay on a mortgage, so the mortgage would be paid off if the grandparent dies.

Term life policies remain in force for a period of time determined by the life insurance company and written in the policy. If the grandparent dies during that period, the beneficiary will be paid a lump sum cash benefit. The policy will expire without value if the grandparent outlives the specified period. 

Final Expense Insurance

  • Age availability: typically, 45-85 years of age
  • Typical minimum face amount: $2,000

Final expense insurance, also known as “burial insurance” or “funeral insurance,” is a whole life insurance policy with a small face amount (usually $2,000 to $50,000). The underwriting for these policies is very liberal, making them perfect for seniors with health issues and pre-existing conditions that would prevent them from qualifying for standard whole life or term life insurance policies.

There are two sub-types of final expense insurance policies: simplified issue policies and guaranteed issue policies.

Simplified issue policies use applications that contain three to five health questions, making it ideal for someone with health problems. In addition, no medical examination is required for someone applying for a policy. Insurance companies use the information submitted on the application to determine insurability, along with information gathered from third-party sources.

This additional information may include things like the applicant’s prescription drug history and driving record. Some insurers also conduct a telephone interview with the applicant to confirm answers on the application or collect additional information. 

Once the insurers' underwriting department collects all of the information, a quick decision is usually made, and the application is approved or declined. However, there is no guarantee that an insurer will issue a simplified issue policy after reviewing all of the information concerning the applicant. 

Guaranteed issue policies are final expense policies issued without any health questions needing to be answered, and without a medical exam being conducted. As the name implies, guaranteed issue policies will be issued regardless of the current health condition or health history of the applicant.

Because the life insurance company is assuming the risk sight unseen on a guaranteed issue policy, the premiums are very high for these policies considering the small face amounts the insurer will issue. However, this is an excellent policy for a grandparent who cannot get approved for any other type of life insurance policy.

There is one major trade-off with final expense insurance: It has a “graded death benefit.” This means the policy will only pay the full death benefit if the policy has been in force for at least two years before the insured person dies. If the policy has been in force for less time than that, the beneficiary will receive only a percentage of the death benefit or a refund of the premiums paid, plus interest.

How Much Does a Life Insurance Policy for a Grandparent Cost?

The cost of a life insurance policy for a grandparent will depend on many variables, much as it does for life insurance for an individual of any age. Factors that determine the cost include:

  • Age
  • Gender
  • Health history
  • Tobacco use
  • Height/weight
  • Medical exam results
  • Occupation/hobbies
  • Geographic location
  • And other factors

Each life insurance company has its own underwriting rules and standards, evaluates each applicant separately, and prices policies accordingly.

Some well-known, highly-rated life insurers that offer life insurance for grandparents over age 80 include Mutual of Omaha, Transamerica, and Aetna. A life insurance agent specializing in life insurance for seniors can help you select the right company, determine how much life insurance you need, and advise how long it takes to get a life insurance payout

How to Buy Life Insurance for Your Grandparent

Buying life insurance for your grandparent is very straightforward. Here are the steps you need to take to complete the process:

  1. Obtain your grandparent’s consent and willingness to complete an application and go through the application process.
  2. Go online to get quotes or meet with a life insurance agent who specializes in working with seniors. Preferably, work with an independent agent who represents multiple companies so they can get you quotes from several different insurance companies.
  3. Complete an application for the life insurance policy with your grandparent. Be sure they answer all of the health questions thoroughly and personally sign the application. Remember, false or incomplete information provided on the application may cause a future claim to be denied by the life insurance company.
  4. Review the policy when you receive it. Be sure the face amount and beneficiary are listed correctly. 

Keep the original policy in a safe, accessible location in the event a claim needs to be filed. In addition, have another family member keep a copy of the policy in case the original can’t be located or becomes damaged by water or fire. 

It’s Easy to Buy Life Insurance for Grandparents

Many life insurance companies will allow you to go through the entire application process online, and they provide licensed agents who aren’t paid sales commissions to help you through the buying process. 

There are also many websites hosted by independent life insurance agencies and agents that will help you and your grandparents find the right policy at an affordable price.

Choose the method that works best for you and your grandparents and enjoy the satisfaction that comes with knowing you’ve strengthened the financial position of several generations of your family.

Categories:

Icons sourced from FlatIcon.