Life Insurance for Seniors: What You Need to Know
Finding the right life insurance policy can be a challenge for seniors, but it’s definitely possible to find worthwhile coverage. Whether your goal is to cover final expenses or leave a lump sum for your family, there are options available. While policies become more expensive as you age, many insurers will accommodate older adults, even if their health isn’t perfect. Let’s explore what you need to know about senior life insurance.
Do You Need Life Insurance?
Before you start shopping, consider whether you actually need life insurance. If you’re debt-free and have healthy savings or funds set aside for final expenses, coverage might not be necessary. Life insurance could be a good idea if:
- You have outstanding debt that others would have to repay after your death.
- You support a spouse, domestic partner, child, or other dependents with your income.
- You want to cover your funeral and burial costs.
- You have a high net worth and want to cover estate taxes.
- You want to provide an inheritance.
- You plan to leave a donation to charity.
Types of Life Insurance for Seniors
Term Life: The Most Affordable Option
Term life insurance can be a good, low-cost option if you’re in good health for your age and are willing to take a medical exam. Because it’s temporary, it’s best for covering debts like a mortgage or providing financial support for a spouse or dependent should you die during the policy’s term. If you shop for life insurance in your 60s or 70s, you can usually get a 10- or 20-year term life policy, but finding term life coverage may be difficult if you’re over 80.
Whole Life: Lifelong Coverage with Cash Value
Whole life insurance provides lifelong coverage, as long as you pay the premiums. It also accumulates cash value over time. You can withdraw this cash or take out a loan against its value. However, building cash value can take time—sometimes a decade or more. Whole life is typically more expensive than term life, particularly when you purchase a policy later in life. This is because your life expectancy is shorter as you age, meaning the insurer may have to pay out the policy sooner. Additionally, health issues often develop with age, potentially raising premiums.
Guaranteed Issue Life Insurance: No Medical Exam Needed
Sometimes called senior life insurance or “final expense” insurance, guaranteed issue life insurance has no medical requirements for acceptance, which can be a significant advantage. Medical exams help life insurance companies to understand your health and predict life expectancy, so policies that require them tend to be cheaper. However, if health issues prevent you from qualifying for coverage, no-medical-exam life insurance like guaranteed issue may be a worthwhile option.
These policies usually have a two-year waiting period before full benefits are available. During this period, your beneficiaries may not receive the full death benefit unless your death is accidental. Instead, the insurer typically reimburses the premiums you paid plus interest, or pays out a smaller sum. Simplified issue life insurance, another no-exam option, requires you to fill out a health questionnaire instead. Coverage tends to be low, rarely going above $100,000.
Permanent Life Insurance: Exploring Other Options
If you’re in the market for permanent life insurance, other options beyond whole life exist:
- Universal life insurance: Offers flexible premiums and death benefits.
- Guaranteed universal life insurance: Has level premiums and death benefits, with lower premiums than whole life, though the cash value buildup is minimal.
- Variable life insurance: Provides a flexible death benefit, allowing you to choose the investments for your cash value.
- Variable universal life insurance: Offers adjustable premiums and investment choices for the cash value portion.
- Survivorship life insurance: Insures two spouses and pays out when the second person dies.
Funeral Insurance
Another option specifically for seniors is funeral insurance, also known as pre-need insurance. These plans are typically purchased from funeral homes. The payout goes directly to the funeral home to cover prearranged services. Funeral insurance differs from burial insurance, which pays the death benefit to your chosen beneficiaries, who can then use the money as they wish.
Finding the Right Plan for You
When choosing a life insurance plan, consider your financial goals and how much cash you’ll need to accomplish them. For example, a term life policy could cover mortgage payments or other debts that would become others’ responsibility at your death. If your goal is to pay for funeral expenses, a small whole life policy or burial insurance may be best, as the death benefit pays out regardless of when you die. Alternatively, you might want to leave a sizable inheritance through guaranteed universal life insurance.
Shopping Tips
Before purchasing a policy, follow these steps:
- Shop around: Compare monthly premiums and death benefits to find the right policy for your budget and financial goals. Be sure to disclose your medical history to get the most accurate quote.
- Know the underwriting standards: Insurers have different standards, so understand how they view various health conditions. Senior applicants with conditions such as heart disease, cancer, stroke, diabetes, or kidney disease might face higher premiums or be denied coverage for traditional policies. If this applies to you, explore other options like guaranteed issue life insurance.
- Consider a fee-only consultant: Work with a consultant to choose a policy that fits your situation, particularly if you are purchasing life insurance with a cash value component.
- Read the fine print: Pay attention to the details, such as causes of death not covered and what happens if you cannot pay premiums.
Life Insurance Riders
Life insurance riders are additional features that can be added to a policy. These can provide added benefits, sometimes at an additional cost.
Riders often available include:
- Accelerated death benefit riders: Allow you to access a portion of your policy’s payout if diagnosed with a terminal illness. Similar riders exist for critical or chronic illnesses, or if you require nursing home or round-the-clock care.
- Long-term care riders: Help cover the cost of in-home care or a nursing home.
- Child term riders: Provide a payout for children of the policyholder if they die during the policy period.
By carefully considering your needs and understanding the various options, you can find the life insurance policy that provides the security and peace of mind you deserve.
