Best Life Insurance Options for Seniors: Get a Policy at Old Age
Sometimes seniors feel the need to purchase life insurance.
Whether you want to cover your funeral costs or provide some extra cash when you pass away, life insurance may be able to meet those needs.
Unfortunately, buying life insurance isn’t as easy for seniors as it is for young people.
As you age, life insurance companies charge more for coverage.
The same goes if your health deteriorates over time.
Once you have a policy, you’re locked in.
However, people shopping for a policy need to understand the realities of shopping for life insurance as a senior.
Here are the best life insurance options for seniors and what you need to consider when looking for a policy.
Why Getting Life Insurance for Seniors May Be More Difficult
Each person has their own age at which they feel a person becomes a senior, but it can vary dramatically.
For some, a person is a senior when they turn 55. For others, it may be age 80 or age 85.
No matter how old you are, getting life insurance gets harder as you get older.
The reality is:
Life insurance companies are entities looking to turn a profit.
As you get older, you get closer to the end of your life expectancy.
The older you are, the more likely you are to die. This makes life insurance rates increase as you age, sometimes to a point where they’re unaffordable.
Prone to illness and other health conditions
Getting older isn’t the only issue, though. As people age, they tend to accumulate health conditions.
Some people may have had cancer or a heart attack. Others may develop diabetes.
While it’s entirely possible for a 75-year-old to be healthy without any significant health issues, the odds of remaining completely healthy decrease as you age.
Health issues lower your life expectancy even more.
Expect to pay more
Health issues may cause life insurance companies to raise premiums above the standard rates for a healthy person of the same age.
Even with these issues, you should still be able to find some sort of life insurance policy.
Here are estimates for the average annual premiums for a $250,000 guaranteed level term life policy for someone classified as "Regular" health (based on MassMutual quotes):
Average life insurance rates for seniors
|Who is being covered||10-year policy||15-year policy|
Types of Life Insurance Policies
Seniors may have access to different types of life insurance policies.
Some are more expensive than others. Similarly, not all policies offer the same coverage options.
Your choices may be limited based on your age or health. Here are the two main categories and subtypes of life insurance you should consider.
Whole Life vs. Term Life Insurance
|Whole Life||Term Life|
|Time frame||Permanent||Temporary, generally 5 to 30 years|
|Premium level||Fixed for life of the policy||Fixed for the term|
|Cost||High||Roughly 10% of the cost of an equivalent amount of whole life insurance|
|Cannot be canceled except for nonpayment||Yes||Yes|
Term life insurance
Term life insurance is the cheapest life insurance option. It’s also the most restrictive in terms of your chances of approval.
A term life insurance policy is for a set period called the term. If you die during the term, the policy pays the death benefit.
The downside is if you die after the term expires, you get nothing.
This significant downside may result in considerable premium savings over permanent life insurance policies.
In fact, you may be able to invest the difference between a permanent life insurance policy’s premium and a term policy’s premium.
You could end up with a nice chunk of money at the end of your policy period if you do.
Young people can often get 20 to 30-year term life insurance policies for affordable prices.
The older you get, the more it will cost for longer term life insurance policies.
Thankfully, life insurance companies offer several term options. These usually include terms as short as one, five, or ten years.
Permanent life insurance
Insurance salespeople often try to convince seniors to buy permanent life insurance policies.
Permanent life insurance will pay out when you die as long as you follow the policy’s rules and continue paying the premiums.
This guaranteed payout seems terrific. It comes at a price, though.
Because the payout is guaranteed, life insurance companies have to charge much higher rates to cover that cost.
Signing up for this type of insurance as a senior raises the cost even more.
You now have a shorter period to pay the premiums necessary to cover the life insurance company’s death benefit cost.
Death benefits for these policies are usually lower, as well. This lowers the risk for the insurance companies.
Comes in different forms
These policies may go by several different names depending on the exact details of how they work.
Some examples include:
- Whole life insurance
- Universal life insurance
- Final expenses life insurance
- Burial life insurance
Final expenses and burial life insurance is often considered a subtype of permanent life insurance.
These policies may also be called guaranteed issue life insurance. They have very low coverage amounts, such as $25,000.
You’re guaranteed to be accepted for them, but the premiums are high because anyone can get them.
Additionally, you have to outlive a waiting period that usually lasts a couple of years before the death benefit pays out.
If you die during the waiting period, your beneficiary usually receives the premiums you paid into the policy instead of the death benefit.
Extra Riders May Provide Other Benefits
Whether you purchase a term or permanent life insurance policy, you may be able to add extra benefits.
These extra benefits are called riders.
Common riders include the option of accelerated death benefits, sometimes called living benefits.
These riders allow you to use some or all of the death benefit before you die in certain circumstances.
Usually, you must be diagnosed with a fatal illness, such as cancer. Then, you can use these benefits to cover the costs of treatment before you die.
Your beneficiaries won’t receive the benefits you take out early.
In some cases, the death benefit may be reduced by more than the amount you take out early.
Determining Why You Need Life Insurance
Now you understand the basics of life insurance options that may be available to seniors.
Before you decide to buy life insurance or look into your options, you need to answer a simple question.
Why do I need life insurance?
You may want to cover your final expenses so it doesn’t put a burden on your family.
You may receive a pension that won’t pass on to your spouse when you pass away.
In this case, it makes sense to want to provide money for your spouse to live on after you die.
Once you know why you want life insurance, you have to determine if it is feasible for your goal.
To do that, you have to get life insurance quotes to get an idea of the prices of the policies.
Compare your options
Then, you can compare the cost of life insurance to the opportunity of saving or investing those premiums over time to reach the same goal.
The older you are, the more likely saving or investing the money may pay off. After all, insurance companies price policies to make money.
The downside is if you die in the near future, you may not have saved or invested enough money to reach your goal.
That’s why many people decide to pay insurance companies the premium to prevent that risk.
Wealthy people may use life insurance differently. They may purchase a policy for estate planning purposes.
For instance, the policy could be used to pay the taxes due when the estate is passed to its heirs or as a tax strategy.
Finding the Best Policy for You
The best type of policy for you will depend on your goals.
If you’re just trying to get life insurance to cover the period while you’re saving up for your goals outside of life insurance, term life insurance may be your best bet.
People who don’t want to save on the side may be better-suited with permanent life insurance coverage.
Of course, you have to qualify for the coverage option you choose.
First, get quotes for term and permanent life insurance from multiple providers.
Each provider may have different rates and different policy options.
Then, compare your options and their costs with your budget to see what fits.
Finally, figure out which helps you meet your goals.
If you need help, consider consulting a fiduciary fee-only financial planner.
These unbiased professionals aren’t influenced by sales commissions, but they require payment for their time and can help you find the best option for you.