Life Insurance for Seniors

I almost always steer people towards term insurance and tell them to avoid the costlier permanent stuff but there is one group that really shouldn’t consider term insurance at all. Seniors that require life insurance for one reason or another should really only consider permanent coverage, otherwise they could just be throwing money away.

If a 75 year old purchases a 10 year term policy, they generally won’t be able to renew it at age 85 and the policy will terminate. Those 10 years worth of premiums will be gone and there’s nothing left to show for it. Usually (but of course not always), anyone over the age of 65 that’s buying life insurance should purchase some type of permanent plan so that they can be sure the money they put in will be passed on to their chosen beneficiaries.

So why would a senior buy an insurance policy at this stage of their lives? They are often debt free now and their children are grown up and financially independent. Their retirement nest egg is fully funded and if they pass away, there financial plan assures their spouse continued financial security.

The most common reason for seniors to purchase life insurance is to provide funds for final expenses and burial costs. Many are comfortable in retirement with sufficient pensions but once they pass on, this money flow stops. Loved ones left behind are required to pay out of pocket for most of their final expenses and this is a burden that many don’t want to pass on. Even if your estate will have retained value which passes on to your family, these monies can be tied up for 6 months or longer and you don’t want your children to have to pay up front from their own funds. A life insurance policy pays out very quickly, often in around 7-10 days time. It provides an immediate, tax free cash amount to cover these expenses.

As I’ve stated above, seniors considering a policy should generally look for a permanent one and not buy term insurance – and definitely don’t believe everything you hear on tv! Lately there is an increasing amount of advertisements that talk about “no medical exam” insurance policies and they tell you how affordable these policies can be. This couldn’t be further from the truth! To compare, I’ve taken an example of a 65 year old male non-smoker who wants to purchase $25,000 of life insurance to provide for his final expenses. A “no medical” option would cost him around $150-175 per month. The same individual who is approved for a fully underwritten policy would pay just $85 per month. Furthermore, the medical exam required for an underwritten policy is far less onerous than most people think. With that in mind, make sure that a “no-medical” life policy is a last resort option for only those who can’t qualify otherwise.

So how does it work out financially? With the same example above, let’s assume that the man passes away at age 85. He has paid $85/month for 20 year which means a total investment of $20,400. His beneficiaries receive the full $25,000 tax free and they have access to the money right away to pay for expenses.

While life insurance is not needed or required for all seniors, it can be an important tool to help ensure that your loved ones are taken care of. Many seniors feel a great deal of comfort in knowing that there will be instant access to cash and they won’t place any extra burden on loved ones in an already difficult time. If you do decide that an insurance policy may be right for you, make sure you take the time to properly understand all the options to get the type of policy that’s right for you.