- Life Insurance
Life insurance is essential if you want to provide for your family after your death and don’t have substantial assets to leave them. It’s something that everyone should consider when they have dependents, but if you’re over the age of 60 those insurance premiums could cost more than you can afford and more than they’re worth.
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If you need seniors life insurance that doesn’t cost the earth and provides the benefits you need, keep these tips in mind.
Why is Seniors Life Insurance So Expensive?
Insurance is an industry built on statistics and probability. You’ve probably heard detractors refer to it as gambling, using this as a reason to refuse any form of life, travel or home insurance. To an extent, they’re right.
Just like a casino, an insurance company studies the numbers and tweaks the outcomes to ensure they always fall in their favor. A policy may award an individual $200,000 when they’ve only paid $20,000, but for every big loss there are many big gains, just as a jackpot win is offset by the countless players who walk away with nothing.
Insurance premiums are fixed based on a series of probabilities. Where life insurance is concerned, the underwriters will look at previous health conditions, genetic disorders, mental health history, drug/alcohol abuse and more, before determining how likely that individual is to cash-out the policy.
For instance, they know that smokers live 10 years less on average, and that heavy drinking and a sedentary lifestyle are two leading causes of preventable death. The average life expectancy in the US is around 78 to 79 years. If you’re purchasing a 30-year policy aged 40, and you’re a heavy smoker, recovering alcoholic who works as a writer, designer, or IT technician, and doesn’t exercise, you fall into all those demographics.
There is a high probability that you will not make it to the end of the term, in which case you’re a high risk and may be charged higher premiums, offered a reduced term or denied a policy altogether.
As a senior, you’re high risk because you’re more likely to cash in the policy than someone aged 20, 30 or 40. As a result, many insurance companies may refuse to work with you while others will simply offer you expensive policies and limited terms. To get around this, you may need to work with specialist senior life insurance companies.
Do you Need Seniors Life Insurance?
At the outset of this guide, we noted that life insurance was essential if you have dependents and no assets. That “if” is key here, because with those things, it becomes less of a concern. It would certainly benefit your family more to have a cash payout on your death, but there is no guarantee and without that guarantee you could be paying into a policy that never pays out, thus taking valuable money from your pocket and your estate.
Life insurance should be considered for seniors who:
- Have a mortgage to repay
- Don’t have sizeable cash reserves or assets
- Are the main breadwinner
- Have debts
That final point is important, because if you have lots of debt then it won’t matter if you have assets because the debt could take them away. As discussed in our guide to what happens to your money when you die, your debt will be passed onto your estate (and if you live in a Community Property Estate, it could be passed onto your spouse).
Prioritization will be declared, and tax debt will be placed at the top of the pile, after which all unsecured creditors can collect their pound of flesh.
If your debts are greater than the value of your estate, you could lose everything, assuming those debts are not forgiven upon your demise (as is the case with most student loan debt). At that point, your family will have nothing.
In this scenario, life insurance is essential. It’s also important to assign beneficiaries, ensuring that the money goes to them and not to the estate.
If your mortgage hasn’t been repaid in full and is passed onto your estate, your heirs will either need to continue making those payments or repay in full (either in cash or by selling the house). If there are additional debts that do not exceed the sum of the estate, these will be repaid, and your heirs will get what’s left.
Therefore, when calculating whether you need seniors life insurance, you need to ask yourself the following questions:
- Do I live in a Community Property State? (includes Louisiana, California, Washington, Idaho, Nevada, Wisconsin, New Mexico, and Arizona).
- Do I owe a lot on my mortgage?
- Will my heirs struggle to pay for my funeral?
- Are my debts greater than my assets?
- Will I leave my heirs with substantial debts and obligations?
If your answers are negative, life insurance is an optional extra. It’s something that we recommend looking into, but not something you should commit to if you can’t find a suitable deal.
If you answered yes to most of these questions and you don’t have an existing policy, it’s worth doing all you can to acquire life insurance or to find another means of supporting your family after you’re gone.
Options for Senior Life Insurance
Unlike whole life policies, which are designed to pay out substantial sums of money in the event the policyholder dies, senior’s life insurance is often designed to payout relatively small sums.
There are typically two options for seniors seeking the protection of life insurance:
Funeral and Burial Insurance
Funerals are expensive and can cost upwards of $10,000 if you want a burial with a premium casket and all the trimmings. That’s a lot of money for your heirs to handle, but it’s something that funeral and burial insurance can cover.
Funeral and burial insurance can either be purchased through an agent or through an insurance company. In the first instance, you can make the funeral home your beneficiary, which allows you to arrange and plan your own funeral in advance, knowing that the costs will be covered and your loved ones won’t have to deal with the stress of planning and paying for a funeral while grieving.
In the second instance, everything is arranged through an insurance company and the money goes to your heirs. There is no prerequisite stating that this money must be used to pay for your funeral, but you can prepare instructions for when you pass.
Generally, these policies cost anywhere from $10 to $100 a month, depending on how much coverage you want. We recommend looking at some catalogs and discussing with funeral homes to discover how much your desired funeral will cost before applying for this insurance.
Term Life Insurance
Whole life insurance is rare for seniors due to the high risk involved. As the name suggests, whole life insurance is designed to be paid for the whole of your life, at the end of which there will be a payout. The alternative is known as term life insurance and is fixed over a specific period.
This way, there is a chance that you won’t die during the term, which means the insurance company doesn’t have to payout, reducing the risk and the costs and allowing them to offer you some favorable terms.
Term life insurance for seniors typically begins at age 60 (if you’re younger, you can apply for traditional term life insurance). Many insurance companies will stop providing these plans when you hit 75, at which point the liability is too high.
You pay a fixed sum of money every month for a predefined term, often 10 or 20 years. The insurance company will then pay out an amount if you die during that term. As an example, a healthy 60-year-old applicant on a 10-year term can expect to pay anywhere from $50 to $150 a month with a $250,000 payout.
As soon as you include previous and existing health conditions into the mix, those premiums increase. You’ll also pay a lot more for a 20-year term as that will take you to 80 years old.
The Best Life Insurance Policies for Seniors
Here for a few options to consider for seniors life insurance. But don’t just take our word for it. Do some research of your own, get as many quotes as you can, and choose the best one only when you’re absolutely satisfied that you’re getting the best deal.
Haven Life
With Haven Life, you can begin your cover up to your 65th birthday. The application process is quick and simple and it’s one of the cheapest options around for seniors, with term policies costing between $50 and $100 a month on average. If you’re 59 or younger, you don’t even need a medical exam for your cover to be finalized.
Haven Life policies are underwritten by MassMutual, an insurer that has existed for over 160 years.
AIG Life
One of the biggest insurers in the United States is also one of the cheapest for seniors. You can get up to $25,000 without the need for a medical exam. This is offered to all applicants aged between 50 and 85, with payouts that begin at just $5,000.
Transamerica
Transamerica offers a final expense policy, which provides a cash sum to be used for funeral expenses and other costs. This ranges from $5,000 to $50,000 and there are multiple policy options aimed at applicants up to the age of 85.
Mutual of Omaha
Although the costs can be a little higher and the options fewer, Mutual of Omaha offers coverage up to $100,000 without the need for a medical. This is rare and will come as a welcome relief to countless applicants who don’t want the additional stress and worry of a medical exam.
What’s more, Mutual of Omaha will release part of your benefit in the event of a terminal or chronic illness.
New York Life
Apply for a policy that lasts for between 5 and 20 years and get a death benefit paid to your family when you die. There are many policy options to add and remove and very respectable premiums and payouts.
Summary: When to Apply for Seniors Life Insurance
The sooner you apply, the greater your options will be. Whether you’re 29 or 59, if you need life insurance then now is a good time to apply. A single year can make a massive difference the older you get, potentially adding tens of dollars to your monthly premiums and reducing your chances of getting the payout you seek.
As soon as you have dependents, bills, and responsibilities, look into getting a whole life or extended-term life insurance.
Source: pocketyourdollars.com