Dear Penny: Should I Take Out Life Insurance on My 47-Year-Old Mom?
My mother is 47 and has been increasingly paranoid about her death. She’s not sickly or in bad shape. She’s been getting better about managing her sudden diagnosis of diabetes.
I think she’s doing well for her age. She works a full-time job and has little to no complaints. Personally, I think she’s just paranoid, but she’s been asking me serious questions about life insurance policies for herself. She wants me to buy a policy on her, but I’m not keen on purchasing a life insurance policy on my living mother whose death I’m not looking forward to.
Nonetheless, she continues to ask me questions about her finances and what I (her 28-year-old daughter) think she should do about her bad credit, old debt from decades ago, and a past repossession. She asks me if her policies will go to that debt? Will her 401(k) go toward those debts? Or will it be safe for my sister and me?
From what I know, she has purchased two life insurance policies and has listed me as her 401(k) beneficiary. I don’t know what I would do if she passed away suddenly, as I have a very small family that consists of just my sister and mother. (Her ex-husband/my father is estranged). I thought her accounts, 401(k), life insurance policies and debts would go into probate after she dies.
She has many years ahead of her. I feel as though she is worried about debt collectors going after money she intends to leave my sister and me when she passes. What could she do to avoid that? What is good advice for her at someone her age? I want her to live a good life now with her grandchildren and not be so worried about the future when she’s gone.
-Concerned Daughter
Dear Concerned,
It’s normal that your mom is feeling more aware of her own mortality after a sudden diagnosis. It’s also normal that you, her loving daughter, don’t want to contemplate life without your mom.
Maybe your mom is going a bit overboard. Or perhaps it just appears that way to you if she’s avoided talking death and money until now. But estate planning is essential even for young and healthy people.
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Your mom needn’t worry that debt collectors will come after you or your sister. Children generally aren’t responsible for their parents’ debts as long as they aren’t co-signers. Generally, their assets and liabilities become part of their estate, and creditor claims get sorted out in probate court. It sounds like these debts may be old enough that they’re past the statute of limitations, though. In that case, collectors couldn’t sue your mom over them or file a probate claim.
But not all assets go through probate. Assets like life insurance policies and retirement accounts, including 401(k)s, go directly to the beneficiary. If your mother has you and your sister listed as beneficiaries, the money goes directly to you both. Even if your mother died deeply indebted, creditors couldn’t touch that money.
My best advice for you, your mom and your sister is to have a deeply difficult conversation. Talk about what the impact would be in the awful scenario that your mother died tomorrow.
Clearly, her death would leave a huge void in your lives. But I’m assuming you and your sister are both self-supporting adults. If that’s correct, it sounds like this void wouldn’t be financial. As part of this conversation, you need to discuss what life insurance policies and other assets your mom has, along with any debts. You should also ask her whether she has a will and urge her to create one if she doesn’t.
If your mom already has two life insurance policies, she probably doesn’t need more life insurance. Instead, she needs to prepare for the likelihood that she’ll live for another four or five decades.
That means maintaining solid health insurance now. Though it’s quite expensive, she may also want to consider long-term care insurance when she’s in her late 50s or early 60s.
Your mom should also focus on saving as much as possible for retirement so she isn’t depending on you and your sister for support. Though she worries about her premature death, the risk is much greater that she’ll outlive whatever savings she does have.
Now would also be a good time for her to focus on improving her credit. If she can’t get a credit card due to a poor history, she could open a secured credit card by putting down a deposit and start rebuilding. Bad credit doesn’t matter much when you die, but it sure makes your living years harder.
Discussing your mom’s death will be scary for both of you. But I think addressing the worst-case scenarios will set your minds at ease. So talk through all the what-ifs, no matter how uncomfortable. Doing so will free you both up to enjoy what I hope are many years ahead.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].
