WHAT ARE THE BEST LIFE INSURANCE POLICIES FOR SENIORS?
Life Insurance is one of those things that we know we should have, but dread as a topic. Indeed, with so many complicated options and conditions, making a right choice about which life insurance policy to buy can be intimidating.
As a senior citizen, buying a life insurance policy it can get even more tricky and expensive because as we age we become a greater risk and payout is more likely.
Ideally, when it comes to life insurance policies for seniors we just want an easy explanation of what’s available and how much it will cost. In this article, we’ll try and demystify the whole topic of life insurance and explore some of the best choices out there for seniors.
Types Of Life Insurance Available
There are many different variations of life insurance available these days. We’ll stick to the main types of plans that would be suitable for senior citizens over the age of 55.
Term Life Insurance
This type of insurance gives the most coverage at the lowest price. This is especially so if you are in good health (it will be less expensive the healthier you are overall).
It provides coverage for a specific number of years (usually 10 to 30 years in five-year increments) while it guarantees the premiums are the same every year. As a senior, you can be limited in the number of years in your term plan.
Many companies don’t provide 30-year plans after age 50–55, 20-year plans are available up to age 60–65, and seniors in their 70s may only be able to purchase 10-year plans. After that shorter-term plans will be needed to extend coverage (1–5 years) which means most likely more expensive premiums with each new policy.
There are three types of Term Life Insurance plans: Level Term Life Insurance, Convertible Term Life Insurance, and Renewable Term Life Insurance.
Level Term Life Insurance
- You have a policy that specifies both a level premium and a level death benefit.
- For example, if you buy a 10-year term policy with a $100,000 death benefit, you will pay identical premiums each year over 10 years, and your beneficiaries will receive $100,000 if you die during that time.
- When the level term policy expires, there is no cash value. However, you can renew and extend your coverage for another number of specific years. Be aware that annual rates will likely be higher since you will be older.
Convertible Term Life Insurance
- Once this Term Life Insurance policy expires you can convert to permanent insurance plan coverage. Most term policies that allow you to convert will require that you do so before the term expires or by age 70 whichever comes first.
- You can choose permanent coverage based on the product offering of the life insurance company that you have coverage with. However, you can also look into a 1035-like exchange for your policy in case you don’t like the options available for conversion.
Annual Renewable Term Insurance (ART).
- ART is renewable every year. It is beneficial for anyone who needs coverage but only for a short time (less than 5 years).
- Although it’s more expensive (the rates increase yearly), most annually renewable term policies don’t need to re-qualify you each year (based on your health). The premium amounts for most annually renewable policies are defined when you take out the policy so you can see the pricing in advance.
Guaranteed Universal Life (GUL)
Guaranteed Universal Life Insurance is a form of permanent coverage and as the name suggests, there are some guarantees. Most of these guarantees are positive for seniors in particular which is why we will explain in further detail.
The premiums for GUL will stay the same during your policy, which is a positive for seniors to manage in terms of their budget. Also, GUL is a ‘safer’ insurance policy since it is not dependent on the financial market (and not prone to fluctuations). Your premiums are set and defined without any surprise increases in premiums.
Another positive is that premiums can be set for a long time. In fact, over your remaining lifetime and up to age 105 and more! There is a guaranteed death benefit, regardless of how long you live. Here you can select the age of maturity for the policy. For example, there are options for GULs: to age 90, 95, 100, and 121.
Some seniors select the highest age option to reduce the risk of outliving their policy. Outliving your policy is something most would want to avoid. They are then put in a position where they need to re-purchase another policy—most likely at a higher premium than their previous one.
You are given a payment schedule, which must be met in a timely manner or else your guaranteed premiums might be compromised. Additionally, there is not always a cash value (or it may be limited). However, the lower premiums are a fair trade-off.
Adding Riders for Long-Term Care and Living Benefits
Adding a long-term care rider (or a living benefit rider) to your insurance policy gives you access to a portion of your death benefit while you’re still alive and can help cover you in the event you need long-term care in the future.
Keep in mind, though, that the amount will be deducted from the total benefit amount, so your beneficiaries will receive less. However, it’s nice to know that in case of chronic or critical illness you can use this rider to provide financial support if you need it.
Why Do You Want Life Insurance?
The main reasons for getting an insurance policy will help you to decide which type of insurance you should get. Some of the most common reasons seniors need insurance coverage include:
- Debt Coverage
- Leaving enough behind to cover outstanding debts like a mortgage, etc.
- You are Still Employed and Have Dependents
- In the event of your death, they will be provided for financially
- Leaving Money to Your Heirs or a Charity
- A significant death benefit can be a generous legacy to leave your loved ones or charity organization
- Taking Care of Your Funeral Expenses
- A death benefit payout to cover your funeral costs (on average 10–25K)
It’s important to decide the amount of death benefit that you want when going with the right life insurance coverage. For many seniors, a high death benefit isn’t necessary. If funeral coverage or enough to cover an outstanding loan is all you need even $100K of coverage can be too much.
There are companies that offer GUL death benefits of $50K to $25K. For others that wish to leave behind a more significant amount to their family or charities, GUL can offer death benefits of up to $10 million or more.
Also, the time-frame of the policy is important to consider. If you only need shorter term coverage, then a Term Life Insurance policy may be the most affordable and appropriate coverage.
If you are in generally good health and wish to take advantage of longer policy duration with consistent payments then a GUL is better because to can set the plan to over age 120! Alternatively, if you are older (up to age 80) when taking out an insurance policy—GUL is still a good option and can give life insurance coverage up to age 120.
Best Life Insurance Options for Seniors
Overall, the best life insurance policies for a senior are Term Life insurance and Guaranteed Universal Life due to their more affordable pricing, ability to select the payout amounts you need (lower amounts are available), ability to add riders, which can help out financially while you are alive, and guaranteed death benefit amounts.
Let’s recap our two types of insurance policies and compare:
|Type of Insurance||Pros||Cons|
|Term Life Insurance||► To replace lost wages if primary earner dies first
► To cover mortgage costs/debt if one spouse dies prematurely
► Less expensive insurance premiums (especially before age 75)
► Can help secure bank Loans
► Can be convertible to permanent if needed
► Secures protection for divorce decrees
► Can add riders to the policy that act as living benefits if you become critically ill, chronically or terminally ill
|► You don’t accumulate cash value. Your premium payment insures only a death benefit payout amount.
► The policy has an end-date which means if you outlive your policy you need to renew up to age 90–95 but it becomes significantly more expensive with options of shorter time spans (1–5-year increments)
|Guaranteed Universal Life||► Insurance premiums never go up while the insurance policy is in effect
► Guaranteed Death Benefit payout amount
► Ability to set age option to 120 thus eliminating the risk of outliving your policy
►Can set death benefits of $25,000 to $10 million or more
► Can purchase GUL through to age 85 as long as you submit to a physical exam (blood and urine test). For seniors who don’t wish to do a medical exam—it’s only issuable through age 80
► Can add riders to the policy which allow you to use a portion of your death benefit in the case of terminal illness to cover health costs
|► You don’t accumulate cash value. Your insurance premium payment insures only a death benefit payout amount
► Set payment schedule with penalties for late payment
Again, the older you are the more expensive life insurance coverage gets; so, if you are considering insurance the sooner you get a policy the better. However, it’s never too late, even 80-year-old seniors can get good insurance coverage without a medical exam. If you don’t have a financial advisor there are several places to find qualified financial advice.
Your local area Agency on Aging will have a directory of trustworthy resources. Also, you can try The Society of Financial Service Professionals for a broker referral. We recommend comparing quotes from several providers to find the best life insurance policy at the best price.
Overall, the best life insurance policies for seniors are Term Life Insurance & Guaranteed Universal Life due to their more affordable pricing…