The cost of life insurance increases with age, so it makes sense to buy early on. But there are a number of valid reasons why seniors still shop for coverage.
Once people reach a certain age they typically don’t have to shop for life insurance. They either purchased a whole life insurance policy when they were younger and continue to pay the premiums. Or they carried a term policy long enough that their children are grown up and they have fewer financial obligations.
However, it’s becoming more common for people to purchase life insurance later in life for a variety of reasons:
- Seniors are working later in life. A surviving spouse may need a life insurance benefit to replace the income that would be lost from their spouse’s death.
- You have a special needs child you want to provide for. A life insurance policy can provide money to pay for professional care and resources for your child after you have passed.
- Many grandparents are raising their grandchildren. If you’re raising children again, you want to ensure they are financially provided for in the event you pass away.
- You still have outstanding debts. People are accumulating debt later in life and many are carrying it into retirement. If this is your situation, you want to be sure that you have enough life insurance to pay any outstanding obligations.
- You want to cover funeral expenses. Most people don’t want to leave the responsibility of paying for their funeral to others. Life insurance can help cover those costs and other expenses that arise as your estate is settled after your death.
- You want to leave an inheritance. Many seniors want to leave a little extra when they pass to their children and/or grandchildren.
Evaluate your existing life insurance coverage
Another reason that seniors may be in the market for a new life insurance policy is that their current coverage no longer meets their needs. For example:
You may be holding on to a universal or whole life insurance policy that offers more coverage than you need and requires more premium payments than you care to spend. If so, it may make sense to surrender the contract.
The good news about doing this is that your policy may have a cash surrender value. This is the sum of money an insurance company pays to a policyholder once it is voluntarily terminated.
However, before you surrender an existing contract, you should make sure that your health doesn’t prevent you from getting a new life insurance policy.
You should also evaluate your life insurance as part of your estate planning review.
If you have a complicated estate that you and your spouse will eventually pass on to your children, you may want to consider a survivorship policy.
This is a type of life insurance policy that covers two lives with one policy. The death benefit is paid to the policy’s beneficiaries upon the deaths of both insureds.
Survivorship life insurance is often used as an estate planning tool by wealthy couples. Once an estate passes from both spouses to children or other beneficiaries, there are often estate taxes owed. A wealthy couple's beneficiaries can use the death benefit from the survivorship policy to cover the estate taxes owed.
This type of life insurance policy is also used by parents of special needs children to provide ongoing care once they pass away. It also has applications in transferring business between family members or partners.
[ Related read: What Are the Different Types of Life Insurance? ]
What is the best life insurance for seniors?
Life insurance gets more expensive the older you get. Also, seniors typically have medical conditions that make them a greater underwriting risk to insurance companies, which also increases the cost of coverage.
Seniors typically don’t have the need or the budget for whole life insurance. Because it guarantees a death benefit, whole life insurance is considerably more expensive than comparable term insurance.
If you need life insurance to replace income or to repay debts, a term policy should be sufficient.
Term life insurance is the most common and affordable type of policy. A term policy covers an insured for a specified period of time. Most terms are 10, 20, or 30 years. The shorter the term, the less you will pay in premium. Your premium amount will be the same for the entire term.
The length of term you need will depend on several factors.
One way you can determine the right length of term is to estimate how much longer you plan to work. If you have 20 years until you retire, a 20-year term may be sufficient.
You should also consider the length of time left on your debt payments, especially your mortgage. If you have 10 years left on your home payments, you might get by with a 10-year term policy.
If you’re only concerned with covering burial and other final expenses, you may want to consider a final expense life insurance policy. This is a permanent policy that provides a minimal death benefit to cover funeral costs. It also offers the advantage of not requiring a medical exam to qualify. You will only have to answer a few health-related questions.
If you can’t qualify for term insurance or final expense insurance because of health issues, another option is a guaranteed issue life insurance policy. This means you can get coverage regardless of your health or other factors. Once you apply and pay the premium, you are guaranteed coverage. Because of the lack of underwriting, this type of policy offers a minimal death benefit. The premium will also be higher than other types of insurance. But a guaranteed issue policy can provide enough to cover final expenses.
If you need to buy a new life insurance policy as a senior, the best way to get the best coverage is to shop around and compare options. Many insurance companies specialize in offering better underwriting ratings — which means better premium rates — to people over 50.
Jack Wolstenholm is the head of content at Breeze.
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