Life insurance is generally considered a financial planning tool used for younger people who want to protect their families in the event that they die, taking with them their income. Many seniors, though don’t believe that life insurance is necessary. In many cases, they are retired, and their children grown. However, there are some cases that may warrant life insurance for seniors. Consider getting life insurance as a senior if the following situations apply to you:
Your Spouse’s Income Will Be Reduced at Your Passing
Depending on how your pension is structured, it might be that, upon your death, your spouse only receives a portion of the payment that you received. Additionally, your spouse will not get the same amount in Social Security benefits once you pass. This means that your significant other may not have access to the same level of income that he or she is used to. In these cases, life insurance for seniors can help alleviate some of this problem, paying a death benefit that can help a remaining partner replace some of the lost income.
You Have Financial Commitments
If you have debts that you have not paid, life insurance can help your spouse discharge these obligations. This can include credit cards, car loans, a reverse mortgage, medical bills or other debts. Life insurance can help your partner pay off the obligations, reducing the chance that he or she will drown in the debt.
There are other financial commitments that you might have as well. Many seniors consider the costs of a funeral and estate expenses in their calculations of financial commitments. These are costs that can be quite hefty, and that can cause financial hardship to a remaining partner. A life insurance policy can help mitigate some of the funeral costs, and can even be used, in some cases, to help offset the costs of estate taxes and other related expenses.
Choosing Life Insurance for Seniors
If you decide that life insurance will work in your situation, you will need to choose a policy. You can consult with a trusted financial planner or adviser who can help you decide how much you will need for your individual situation, and what type of life insurance to get. Many seniors prefer term life insurance, since it is less expensive, but if you outlive the term, you will have to get a new policy. Some companies will let you renew your term insurance at similar rates. Other companies offer term life policies for seniors that refund part of the premiums paid if you outlive your term.
When is Term Life Insurance Better
If your desire is to keep your life insurance premiums as cheap as possible, term life is usually the way to go. For seniors, it may be tough to initially get insured. If you’re able to get approved for a term policy, you might want to consider a guaranteed renewable policy that you can renew regardless of your health status at the end of the term. Also, term insurance may be ideal for a situation that you only need life insurance for a brief period of time to bridge you during certain times of life (early retirement to social security, as an example).
Cash Value Life Insurance
For those who do not want to worry about outliving the term (and maybe build cash value), whole life or universal life policies might work well. However, these cost more, and, depending on the policy, may not suit your needs.
Cash value insurance (could be whole life or variable universal life), in contrast, combines term insurance with a savings component. Cash value is likely to be more expensive than term insurance but typically remains in effect throughout a policyholder’s lifetime at a level premium. The premium that you pay is part used to pay for the actual insurance and the other goes toward the investment portion of the contract. This is the part that can accumulate and will ultimately be the portion that you’ll be able to borrow against tax free. As the investment portion accumulates, you can then use it to pay for the premiums of the policy. You also have he option of completing cash in your life insurance policy (the cash value), which will then cancel the policy.
Interest and other earnings that are credited to the cash value are not subject to income taxes. When a policyholder borrows against the cash value, interest is charged as it would be with most types of loans. The loan is treated as a debt and is not considered a distribution for income tax purposes.
Cash value insurance may be attractive if you anticipate needing insurance throughout your lifetime, if you can afford the higher premiums, and if the option of borrowing against the cash value appeals to you.
You Want to Leave an Additional Lump Sum Legacy
Some seniors want to leave their heirs an additional legacy. A lump sum life insurance payout can satisfy that desire. You can provide a payout to children or grandchildren via a life insurance policy. For those who do not have enough money to gift their heirs with a large sum of cash, a life insurance policy can be a way to provide that without having to part with a large sum while you are alive.
These type of polices are either whole life or guaranteed universal life. These type of insurance products could have some cash value built into then or have the option of buying a guaranteed life insurance amount for a one time premium payment. As an example, a 60 year old in good health could could purchase over $400,000 of life insurance for about $100,000 with a one time payment. There would be no cash value in this example and after the free look period, would be completely irreversible. A senior looking to for more estate planning purposes would want to consider this.
Before you decide to get life insurance, carefully consider your needs as a senior, and look for a policy that will best help you meet your goals.