Quora Answer: Why Did My Parents Make Me the Insured in Their Life Insurance Policy & Themselves the Beneficiary?

The following is my answer to a Quora question: “Why did my parents make me the insured in their life insurance policy, and themselves the beneficiary?  Should it not be the other way around?”

The purpose of the policy is to manage risk.  As their child, it would be reasonable for me to assume that a lot of money was invested in you, in your education, for example.  Should anything happen to you, that would be a loss.  The purpose of this policy is to mitigate that loss monetarily.

Also, it is cheaper for you to be the life insured, as opposed to them, due to mortality charges, which ramp up the older you get.  You do not invest in your parents.  They invest in you, as their progeny.  At their age, considering they have adult children, their priority is no longer wealth protection but health coverage.

In the event that the policy is not whole life or term life, but a form of endowment or investment-linked, this is also a means of accumulating wealth at a lower mortality cost since you are younger.  The coverage on your life is an immediate estate.  The coverage against disability or critical illness, if any, mitigates the cost of maintenance in the event you cannot generate income.  More importantly, as the owner of the policy, all income generated from it is theirs.  They are not obliged to give it to you.