Supporting your aging parents until their death can be costly, and life insurance is one way to potentially recoup some of the money you've spent on their care, or to help pay for final expenses such as a funeral. Under certain conditions, some policies allow you to use the benefits before the policyholder's death.

You'll need to collaborate with your parents to find the best coverage for their needs.

The benefits of buying life insurance for your parents

According to an AARP survey published in January 2020, 42% of adults aged 40 to 64 expect to provide regular financial support to their parents. Many people belong to the "sandwich generation," meaning they buy groceries or pay rent for their parents while also raising their own children or covering expenses for their adult children.

Though it is less cost-effective than diligently saving for retirement, according to Ryan Pinney, president of life insurance brokerage Pinney Insurance, life insurance can help offset the costs of your parents' aging in some cases. If you began saving for your parents' final expenses with a savings account or the stock market today, it could take decades to accumulate the same amount of money as a life insurance payout.

"Life insurance allows you to almost instantly multiply your money as an asset or a pool to take care of long-term expenses," Pinney says. "This really gives you the leverage to help out in a hurry to take care of Mom or Dad."

Aside from making up for lost time, there are other reasons to investigate a life insurance policy for your parents. If you have to miss work to care for them, you may lose money. You should avoid selling their home to pay off their mortgage. Alternatively, your finances may be linked to a co-signed loan.

Essentially, if you anticipate being financially harmed by the costs your parents incur near the end of their lives, it is worthwhile to investigate life insurance for them. Even if they already have a policy, you can purchase another to supplement their financial needs as they age and to pay for expenses after they die.

Working together to buy life insurance

Purchasing life insurance for your parents is not the same as surprising them with a birthday gift. To take out a policy on someone's life, you must first obtain their permission.

This means that your parents must agree to become insured. As part of the process, they may be required to take a life insurance medical exam.

Who pays the premiums has no bearing on the cost of their policy. However, you can compare life insurance quotes online and find the best deal.

What type of policy is best?

When you and your parents realize they need life insurance, Andrew Doerman, vice president of digital distribution and strategy at Legal & General America, advises getting started on finding the right type of life insurance right away.

"The younger and healthier you are, the lower your rates," Doerman says. "We also see a lot of cognitive decline with elderly parents over time, and many companies won't issue policies if there's dementia or Alzheimer's."

Burial insurance, a life insurance policy with a small death benefit that beneficiaries can use as needed, can be used to simply cover funeral expenses. You can also purchase funeral insurance, which pays a funeral home directly for prearranged services.

Term life insurance is a good option if your parents only need coverage for a specific period of time, such as the term of a mortgage. Remember that if your parent's term life policy expires before he or she dies, no one receives a death benefit.

Permanent life insurance does not expire and has a cash value if you need to withdraw money from the policy before your parents die to help cover bills — but the premiums are typically much higher than those for term life insurance. Furthermore, because cash value accumulates over time, if you haven't had the policy for long, the life insurance cash value is negligible.

Using accelerated death benefits

When shopping for life insurance for your parents, inquire about accelerated death benefits. These optional benefits may help cover the costs of terminal illness, a life-threatening diagnosis, or long-term care.

In essence, your parents can receive a tax-free advance of a portion of the death benefit in the event of an emergency, allowing you to avoid using other assets to cover those costs.

Remember that using accelerated death benefits will reduce the payout when your parents pass away. However, if you're purchasing life insurance for aging parents, you may appreciate the ability to use some of the funds sooner rather than later.