There are several situations where it may be appropriate for adult children to want their parents to purchase and pay for life insurance. Here is one such example when life insurance may be the best solution.
Parents I met lived a in family home with many acres of land that has been in the family generation after generation. When the parents die, there is not enough cash available to pay the taxes that will be due at the time of their death. Some of the land could be sold to pay the tax and keep the remaining land in the family. The parents and the rest of the family did not want this. Keeping all of the property in the family was very important to all involved.
One solution is to buy a second to die life insurance on the parents. A second to die policy can be easier to qualify for than an individual policy on each parent since the money is only paid out after the second insured dies. Since the tax will be due at the second death, is can be a great solution.
The amount of coverage to purchased can be calculated by estimating the amount of tax due at time of the second death, keeping in mind the future estimated value of the real estate.
If this policy is purchased within an “irrevocable life insurance trust” there will be no tax due on the death benefit when it is paid out. Of course, the earlier you purchase the policy, the lower the cost and the better the chance that you will qualify to purchase it. If you wait too long, this solution may no longer be available to you.
There are a few options for how to pay the premiums. Some times even though there may not be a lot of investments or cash at hand to pay premiums, often as we age we are not as active and do not spend all of the income available to us. If that is the case, it makes sense to take a portion of the money you do not need to have a good life and use it to preserve what you have spent your life to build.
Here’s another option to consider. If the parents cannot afford to pay the premiums it may make sense for the people that will inherit the property to share the cost of the premiums. Having each person pay a small amount yearly can enable them to keep the family legacy in tact, which is the ultimate goal.
All insureds will need to answer questions and sign the life insurance application. So, you will need to have them onboard and explain the importance of what you are suggesting.