Life insurance for grandparents

Can a grandchild buy the policy

Yes. A grandchild is a close family member, so the relationship carries the insurable interest a carrier requires, and there is nothing unusual about a grandchild owning a small whole life policy on a grandparent and paying the premium out of their own account.

The same two conditions apply as with any policy on another life. You need an insurable interest, which you have, and the grandparent must consent in writing and answer the health questions themselves. No carrier will issue a policy on somebody who has not signed for it, and nobody should offer to arrange one that way.

What is different is the age. Everything on this page comes back to the fact that a policy written at 72 is available from many carriers at a reasonable premium, and the same policy at 87 may be available from very few, at a price that makes the arithmetic harder.

Insurable interest and consent

Insurable interest is the rule that you may only insure a life where you would genuinely suffer a loss. Grandchildren, like children and spouses, fall inside the presumed family relationship, so this is almost never questioned. Where it does come up is with step relationships and with in laws, where a carrier may ask for a short explanation of the financial connection. Being the person who will pay for the funeral is a perfectly good answer.

Consent has one extra dimension at these ages. The grandparent has to be capable of understanding what they are signing. If cognitive decline has progressed past that point, the application cannot proceed, and a power of attorney does not generally rescue it, because most carriers will not accept an attorney in fact signing as the proposed insured on a new life policy. It is worth being blunt about this because it is the single most common reason a family finds it is too late.

Issue ages, and what closes first

Every carrier files its own maximum issue age, and they cluster in a predictable way across the market. The table describes what is generally available by age band rather than the rules of any particular company.

A general description of the market by age band. Issue ages, product availability and face amount limits are set by each carrier and filed state by state, so nothing here describes any specific company or guarantees availability.

Notice the order in which things close. Choice narrows first, then the maximum face amount falls, then level benefit becomes harder to obtain, and only at the very end does the product disappear entirely. A family that starts looking at 78 has a very different set of options from one that starts at 88.

Face amount limits at older ages

Small whole life policies are commonly written between $2,000 and $50,000, but the top of that range is for younger applicants. As age rises, carriers reduce the maximum they will issue, and by the mid eighties a cap somewhere around $10,000 to $15,000 is common rather than exceptional.

That has a practical consequence worth planning for. If a grandparent in their eighties wants a traditional burial, and a burial with the cemetery included commonly lands near $15,395, a single capped policy may not reach the whole figure. Two smaller policies with different carriers is a normal solution, and so is an honest conversation about a cremation with a service, which averages $6,280 and is a great deal easier to fund. Working out the amount you actually need should come before shopping for the policy, not after.

What it costs in the seventies and eighties

Illustrative monthly ranges for a $10,000 level benefit policy, non-tobacco, in reasonable health. The low end is roughly what a competitively priced carrier offers and the high end is roughly what a less competitively priced one quotes for the same answers.

Illustrative ranges only, not quotes, not carrier specific, and no rate is fixed until an application has been approved and issued. Premiums at these ages rise steeply year on year.

At the top of that table the honest question is worth asking out loud. If the premium is high relative to the benefit and the grandparent is in poor health, a graded or guaranteed issue policy may pay very little in the first two years, and a dedicated savings account may serve the family better. A good agent will say so. The full cost picture by age sets out the figures from 50 upwards.

Setting the policy up properly

Four roles sit on every policy and on a grandparent policy they are rarely all the same person. The grandparent is the insured, because the policy is written on their life. The grandchild paying for it should normally be the owner, so the premium notices arrive somewhere they will be dealt with and the policy cannot be quietly changed or allowed to lapse. The beneficiary should be whoever will actually settle the funeral home bill.

Name a contingent beneficiary as well. At these ages the risk of the named beneficiary dying first is not theoretical, and a policy with no living beneficiary pays into the estate, which is slow and can expose the money to creditors. How to name a beneficiary properly covers that in detail.

Coordinating with the rest of the family

Grandchildren buying cover on a grandparent are often not the people who will make the funeral arrangements. That gap causes two avoidable problems. The first is duplication, where an aunt and a grandchild both quietly buy a policy on the same person, doubling a premium nobody needed to pay twice. The second is a benefit that arrives with someone who has no role in the arrangements, which slows everything down.

• Ask first whether a policy already exists. Unclaimed and forgotten policies are common, and the NAIC runs a free locator service.
• Agree which one person will hold the policy and receive the money, and tell everyone who it is.
• Write down where the policy document is kept and which carrier issued it.
• Find out what the grandparent actually wants, burial or cremation and where, and record that too.
• If several relatives want to contribute, contribute to one premium rather than buying separate policies.

If the door has already closed

If a grandparent is beyond the issue ages, cannot consent, or cannot be insured at a price that makes sense, there are still useful things to do. Price the funeral they would want in their own state so the number is known rather than feared. Set up a dedicated savings account in a form the family can reach quickly, since a bank account in one name alone is frozen at death until an executor is appointed. Check whether an old policy exists. And look at what a prepaid funeral arrangement does and does not guarantee before committing money to one.

If health rather than age is the obstacle, the lower tiers are still open. Graded benefit pays a percentage of the face amount in the first two years, and guaranteed acceptance asks no health questions at all, refunds premiums plus interest during its two year wait on natural death, and covers accidental death from day one.