LIFE INSURANCE CHOICES FOR SENIORS
Many younger adults decide to buy life insurance because they have just assumed major responsibilities—they’ve gotten married, or bought a house, or they’re starting a family. But that doesn’t mean that older folks don’t have the same responsibilities: dependent spouses, children and grandchildren, and home mortgages. After all, those responsibilities you assumed when you were younger rarely neatly evaporate as you age. For that reason, turning 65 doesn’t mean you’ve outlived your use for life insurance coverage. Which means it’s good news is that you can still find life insurance at age 65 and even when you’re older.
Can You Buy Life Insurance After Age 65?
Luckily, many life insurance companies offer policy choices to people of almost any age, including life insurance for seniors. Some insurers offer term policies to people in their seventies and offer whole life policies to those up to age 85, so it may be easier than you think to find a life insurance policy that offers your family peace of mind.
While most people can purchase a life insurance policy, it’s important to learn about the different kinds of policies available to people 65 years of age and older. That way you can understand all of your available options and choose the right type of life insurance for yourself and your loved ones, no matter your age.
Why Do Seniors Consider Buying Life Insurance Plans?
The first thing you need to decide is how you and your loved ones could benefit from life insurance coverage. Once you have a grasp of what you want, and how life insurance for seniors will benefit you, it will be easier to choose the best senior life insurance for your situation.
An article on CNBC.com covers some of the main reasons that senior citizens might benefit from having life insurance coverage:
Dependents who rely upon you for income: Do you know how you would provide for your loved ones if you pass away? This is a question that people of any age might have to wrestle with, obviously, but you may have particular concerns if a dependent suffers from a disability and relies upon you for income or care, or if your spouse is no longer of working age. Nor is disability or age the only factor when it comes to dependents: after all, these days, the economy has sent many children of Baby Boomers back home to live with their parents, and grandchildren as well. In addition, if you didn’t have children until you were older, your kids may not even have finished with their education yet.
Debt: Large debt—and many reach retirement age with debt—could reduce the amount your family would inherit from an estate. If your loved ones couldn’t handle the debt without you, they may lose important assets. Could your family pay your mortgage or other obligations without your support? Would your estate lose a lot of value if it first had to pay debts? If so, life insurance coverage may help.
Business or farm ownership: Inheritance taxes or family squabbles could force your loved ones to liquidate a farm or business after the owner passes away. For instance, you could have most of your money tied up in assets needed to run your farm or small business. In other cases, you might want to leave your business to one child but still give other children an inheritance. The proceeds from a life insurance policy could solve some of these problems, and bring you peace of mind in your old age.
Concerns over final expenses: These days, funerals and burials can cost several thousand dollars, and your survivors may find themselves caught between honoring you in the way they want to and the potential financial burden a funeral could impose on them. If you and your family don’t have a lot of cash, a final expense policy can help your loved ones plan a dignified burial and funeral without added stress.
Heirs with an immediate cash need: Estate planning can help your heirs avoid a costly and time-consuming probate process. At the same time, keep in mind that beneficiaries can typically collect the death benefit from a life insurance policy very shortly after providing the insurer with a death certificate. So if you have a complicated estate, or if there’s the potential for legal challenges, you could help your spouse and children avoid serious financial problems by guaranteeing them a life insurance death benefit.
Worthy causes: As some folks age, they find they want to create a legacy by donating money to a favorite charity or other worthy cause. You can donate some or all of the proceeds from a life insurance policy to these organizations.
Transfer wealth to the next generation or a spouse: One of the biggest advantages of life insurance is that the death benefit isn’t considered taxable income. You can use life insurance to leave them money even if you’ve reached retirement age with only modest assets.
Finally, while people consider buying life insurance primarily for the death benefit that beneficiaries receive when they pass away, you might also take advantage of the other benefits that some kinds of life insurance offer. Examples include cash value or the ability to sell policies in a senior or viatical life settlement. This article will cover these topics in more depth below.
Which Seniors May Not Need a Life Insurance Plan?
In most cases, life insurance pays out cash directly to beneficiaries and doesn’t generate any additional taxes. Some kinds of life insurance may also grow a cash value that you can borrow against or sell if you need the cash as you age. In return, you have to pay premiums. Depending upon your current life expectancy, you may find that you have to pay premiums for a long time before you pass away.
You could also, of course, outlive your term policy. That could be a great thing, but if you do outlive your term, you may not get a payoff from for your term policy. For example, Social Security says that women who are turning 65 may expect to survive until at least 86. If you are that average woman, and you buy 20-year term at age 65, you’re likely to survive the policy. Term policies do offer less expensive premiums, but make sure your term policy is convertible to permanent life insurance. That way, if you get close to the end of your term, you can always switch your life insurance coverage to whole or universal life insurance. The policy might cost a little more than non-convertible policies, but it will give you a way to hedge your bet.
Finally, in some cases, your beneficiaries may not really need the death benefit, meaning that you could find other uses for the money you might otherwise spend on premiums. For instance:
- You might invest the money or use it to payoff debts. This might give you a more comfortable retirement and improve the health of your estate more than life insurance.
- You could set up an emergency fund with one or more of your beneficiary’s names on it, so they can withdraw money even faster than they could access the death benefit.
- You can set things up so that your financial accounts and even the title in your home automatically transfers to your heirs upon your death. Look into payable-on-death, or POD, accounts.
- You might consider long term care insurance or an annuity. Both of these financial products may help your family because they provide money for your future care needs or extra income, so you don’t have to rely upon your savings or adult children so much. Some life insurance policies may have living benefits too, so you should consider the pros and cons of using life insurance to plan for certain situations.
People may simply buy life insurance as a way to transfer wealth easily to the next generation. Few beneficiaries ever regretted having their name on a life insurance policy. Still, you may find other options that work better for your family. If your finances are complex, you might speak with a financial planner who specializes in helping people with retirement and estate planning for advice. While it’s admirable to want to leave money behind, you should also consider your own retirement finances.
How Can You Find Affordable Life Insurance at Over 65 Years of Age?
Before you decide if you should consider buying life insurance for senior citizens, you should also learn more about available options. If you purchase a policy with level premiums and benefits, you don’t have to worry about premium increases or coverage decreases as you age, while cost of new policies will most likely increase.
With everything else being equal, expect premiums for new policies to increase at least eight percent for every year of age. You’re not going to enjoy the same cheaper rates at the age of 65 as your 55-year-old spouse or 35-year-old child. That’s why it’s so important for senior citizens to compare premiums and benefits from different companies and for different kinds of coverage.
That said, you should not just shop for cheap premiums but for a good value from a highly rated life insurance company. In some cases, more expensive kinds of life insurance may offer valuable benefits to you and your family.
Kinds of Life Insurance Policies for Seniors
These are the types of policies that life insurance companies usually offer senior citizens:
Term life insurance: At age 65 or above, if you’re in relatively good health, you should find companies who will at least offer you 10-year or even 20-year term insurance. Because insurers offer lower life insurance rates for term insurance, you may be able to afford more coverage than you could with permanent life insurance. Term won’t grow a cash value or cover you after the term ends, however, so you may have to pay much more for life insurance or go without if you age beyond the term of your policy. If you believe that your need for a lot of coverage is temporary, term provides you with a budget-friendly option.
Whole life insurance: With this type of life insurance, you can enjoy coverage for level premiums for the rest of your life, as long as the premiums get paid. Permanent policies cost more than term, but you won’t have to worry about your policy expiring if you age beyond the term. In addition, these policies allow you to grow a cash value that earns returns in a tax-advantaged way. That means that whole life may provide you with an asset you can use while you are still alive. You may also be able to pay your policy off after a few years, so you won’t have to worry about making payments when you are older.
Universal life insurance: Universal life is another kind of permanent life insurance that doesn’t expire after a term. It’s more flexible than whole life because you can vary your premiums from month to month within limits. Any money that you pay that’s in excess of what the life insurance company needs to fund your death benefit goes into a cash account, and this can earn returns. People may choose universal life because it’s more flexible than other options and can serve as a savings vehicle in the long term. In some cases, you can even use the cash account to make premium payments as you age.
Final expense insurance: Often called burial policies, these are whole life insurance policies with fairly small death benefits. Typically, the face amount ranges from about $5,000 to $25,000. These are mostly meant to provide your beneficiaries with cash for funeral expenses and other associated costs that occur at the end of life. At the same time, the beneficiaries are free to use the cash in any way they choose, just as with other life insurance. For instance, if you name your daughter as the beneficiary of a $25,000 policy, she might spend $10,000 on final expenses and still have $15,000 to spend or save.
Options in Term Life Insurance for Seniors
If you hope to have coverage for several years, you’ll probably be happiest with level premiums and a term that lasts as long as you need it. To get lower premiums, you can even buy annual renewable term. You may see this type of policy called guaranteed renewable. You could have the option to renew your term policy every year or every few years.
The takeaway here is that you should look for level premiums if you want to be sure you pay the same premiums for the life of your policy. Guaranteed renewable only means that the insurer has to allow you to renew your policy, but they may increase premiums. Guaranteed renewable policies may appear a lot cheaper when you first buy them, but premiums could increase rapidly. Buying level premium life insurance will keep your premiums predictable.
Guaranteed Acceptance, Fully Underwritten, and No Medical Exam Life Insurance
You may also have some choices to make about your application process. For example, you have probably seen advertisements for senior life insurance that you can buy without a medical exam. You may have even seen life insurance companies that will guarantee acceptance without having to answer any health questions at all. If you do need a medical exam, the life insurance company will pay for it. Most of the time, these life insurance medical exams are quick and non-invasive. In many cases, the insurer will even send a paramedic to your home or office to collect samples, weigh you, and so on.
In order to understand these application options, consider some of the pros and cons:
Guaranteed acceptance/Guarantee issue/Guarantee life insurance: While some people, especially those with pre-existing conditions, may benefit from not having to answer any health questions or take an exam, everybody should know that life insurance companies charge more for the same amount of coverage because they factor in the risk. In addition, these kinds of policies always have waiting periods that the insured person must survive before they will pay the full face value. If the insured person dies before a two- to three-year waiting period, the policy will usually refund premiums with interest or pay some portion of the face value.
No medical exam: Sometimes you may see these kinds of policies referred to as simplified issue or no-exam life insurance. While you don’t need a medical exam, you will probably need to answer some medical questions. The life insurance company will probably verify your answers from sources like your state’s Department of Public Safety or the Medical Information Database. If you have certain pre-existing health conditions, the insurance company may charge you more or even decline you. Still, you can get an immediate death benefit and lower premiums than with guaranteed acceptance policies.
Fully underwritten: In this case, the insurer will require a health application and a medical exam. This takes a bit longer, but if you’re fairly healthy and want a large amount of coverage, you should look for a fully underwritten policy. You have a chance to get offered lower rates and will always have an immediate death benefit if accepted.
Which kind of application should you look for? Depending upon the kind of life insurance and amount of coverage, you may not have all of these choices. Obviously, insurance company requirements for underwriting will increase as the face value of the policy gets bigger and as you age. By agreeing to underwriting, you also have the chance to get lower premiums and better benefits.
Any relatively active senior should consider a no medical exam life insurance policy over guaranteed acceptance. Guaranteed acceptance policies offer people who are already diagnosed with serious diseases or who need personal care a chance to buy coverage, but many seniors can get cheaper life insurance rates, more coverage, and better benefits if they answer health questions on a short application.
If you’re not sure about your own situation, you might speak with a life insurance agent. Agents can look at their underwriting guides and applications to provide you with advice about the best choice.
Living Benefits Payment Riders
The primary reason that most consider buying life insurance is to provide their beneficiaries with cash from the death benefit. But permanent policies may also accumulate a cash value. These days, many companies offer living benefits riders that can offer you peace of mind when you need to handle certain circumstances while you are still alive. These riders may vary by state, but they typically pay out some portion of the death benefit if the insured person has been diagnosed with a terminal illness and isn’t expected to survive more than 12 months.
The policy pays the insured person and not the beneficiary, and these benefits are intended to help with medical and personal care expenses. Any money that is paid out will reduce the death benefit. At the same time, many families find that they benefit from having this extra income more while the insured person is still alive and needs care than they would after that person passes away.
Some insurers may also offer other riders to help pay for long term care, critical illnesses, and accidents. While the living benefits rider may be included with the policy, these other riders generally cost extra.
Other Ways Seniors Can Take Money From Life Insurance Before They Pass Away
If you buy a permanent whole or universal life insurance policy, you can use the cash value by borrowing against it. You can also simply surrender the policy for its cash value. If you borrow against the policy, you have a chance to pay the loan back, so beneficiaries can still inherit the full cash value. Otherwise, the death benefit may be reduced by the amount of the loan. Still, this is one way you can use your permanent life insurance as an asset and not just for coverage on your life.
People over 65 who have permanent policies or term life insurance policies that are guaranteed convertible to permanent life insurance may also consider looking for a senior life settlement. Life settlement brokers handle these transactions by shopping around for the best offer. Depending upon the insured person’s age and life expectancy, investors may offer to buy the insurance policy for some portion of the face value. You may get more money by selling your policy in a senior life settlement than by surrendering it for the cash value. Terms and state rules might vary, but you usually have to be at least 65 of age and have held the policy for a minimum of two years to qualify.
How Much Does Life Insurance for Seniors Cost?
At this point, you should understand that life insurance premiums increase with age. Premiums might also vary because of location, gender, and certain lifestyle factors. Commonly, smokers pay more than people who do not use any tobacco. Term costs less than permanent policies because the life insurance company takes less of a risk.
Of course, life insurance companies are free to set their own rates, so it’s always wise to shop around to find a company that will offer you competitive quotes. Even a seemingly minor difference in rates can add up to hundreds or even thousands of dollars as you age if you keep your coverage for many years
10-Year Term Life Insurance Sample Premiums
These are some sample term rates that are intended as informational. Since life insurance premiums for seniors can vary so much, you should not assume these premiums will represent your own quotes.
These monthly premium samples are for a 65-year-old woman who doesn’t smoke and wants to buy a 10-year term life insurance policy with different death benefit amounts:
- $100,000: $38.25
- $500,000: $148.80
These samples are for a 75-year-old woman who also does not smoke and wants a 10-year-term:
- $100,000: $115.60
- $500,000: $454.57
Whole Life Insurance Sample Premiums
These sample quotes for for guaranteed acceptance and no-medical-exam whole life policies that are mostly intended as final expense policies:
- Guaranteed acceptance $10,000 : $80.00
- No-medical exam $10,000: $47.43
These examples show that you will pay almost twice as much if you’d rather not answer health questions. Insurers may offer as much as $50,000 in whole life without a medical exam, but you will almost certainly need to have an exam for greater amounts of coverage. If you are relatively healthy and agree to a medical exam, you could enjoy lower premiums than the ones listed above and qualify for more coverage.
Senior Life Insurance Payment Options
Most life insurance companies will give you the option to pay monthly, quarterly, or annually. Typically, insurance agents and companies will advise you to set up an automatic bank draft to keep you from accidentally forgetting to pay your premium and allowing your policy to lapse as you age.
If your policy does lapse, you will almost certainly have to pay higher premiums to reinstate your policy. If you’ve developed a medical condition since you first bought your life insurance coverage, you may have trouble even getting accepted for adequate insurance. Some life insurance companies may offer you a discount if you set up automatic payments too.
Who Pays Senior Life Insurance Premiums?
Some senior citizens pay their own policy premiums, but that’s not always the case. Very often, seniors name one or more of their adult children as beneficiaries, and these grown children may be in a better financial position to pay premiums than a senior citizen on a fixed income.
Since the main reason that people purchase life insurance is to provide a death benefit for heirs, the beneficiaries are of course, the ones who will benefit. In many cases, adult children offer to pay premiums for the life insurance policy that covers their parents. If you’re an adult child who is researching life insurance options for your elderly parents, you might discuss this option with them.
Yes, You Should Shop Around for Senior Life Insurance
If you decide that you and your family can benefit from life insurance, you should compare different kinds of policies. You should also compare premiums from different companies for the same type of coverage. These days, it’s pretty simply to obtain free online quotes on life insurance for seniors. You might also work with a life insurance agent who has experience working with seniors: These professionals can consider your requirements, preferences, and budget in order to provide you with good solutions.
You know that life insurance for seniors will cost more for older people than for younger people. That doesn’t mean that you need to overpay or think that you won’t be able to afford the premiums. And it can be one more way that you secure peace of mind for yourself and your loved ones.
Turning 65 doesn’t mean you’ve outlived your use for life insurance coverage.