One major decision you might find yourself making as part of your financial road map in retirement is what role life insurance coverage should play. If you're older, you may be wondering if it still makes sense to have a policy, or whether it's even still possible to get a policy at this point in your life.
While the answers will depend on your unique situation, life insurance for seniors is one way to help cover your final expenses and unpaid debt when you die. It can also be a way to help provide income to your family. Whether you're nearing retirement or already enjoying your golden years, here are some important considerations.
Why Seniors May Need Life Insurance
As we get older, our financial needs change. The reasons you considered life insurance earlier in your life may no longer apply. For example, your kids have grown up and no longer depend on your income, but seniors may have different financial goals that can be served by life insurance.
In 2019, the median cost of a funeral with a viewing and burial was $7,640, according to the National Funeral Directors Association. Your beneficiaries may also need to pay fees to the state government for probate, which is the legal process of reviewing a will and transferring a deceased person's assets. By setting up life insurance, you could leave your loved ones money to help cover some of these final expenses so they can focus on celebrating your memory.
Medical Bills & Other Unpaid Debt
You may also run into sizable bills during your final years. In particular, health care costs could be a significant expenditure, especially since Medicare does not cover 100% of treatment. You may also have credit card debt, loans or a mortgage. The death benefit from a life insurance policy could help pay these debts off.
Income for Your Family
Just because a person reaches their golden years doesn't necessarily mean they stop earning income. Almost one out of five Americans over the age of 65 continues to work, according to the Bureau of Labor Statistics. If your spouse or other family members are relying on your paycheck, your death could leave them in a tight financial position.
If you'd like to leave your grandchildren or other family members an inheritance, life insurance could be an effective way to do so. This way you could help pay for a loved one's college education, make a down payment on their first house or just help your family cover bills to make their lives a little easier when you're gone.
Depending on your total net worth, you may owe estate taxes when you pass away. The government subtracts this from your assets before your beneficiaries receive any inheritance. At the federal level, this tax only applies when you pass on over $11.4 million, according to the IRS, but a number of states also charge some sort of estate or inheritance tax, and their limits may be lower.
Besides estate taxes, if your beneficiaries inherit a house from you, they would likely need to keep up with the property taxes for as long as they own it. If you pass along stocks or a retirement plan, your beneficiaries could owe taxes when selling or taking distributions, respectively. Life insurance could help them receive a portion of your estate tax-free.
Donations to Charity
You can also use life insurance to support your favorite charity. Rather than making a small cash donation each month, you could use that money to pay for life insurance coverage and name the charity as your beneficiary.
Types of Life Insurance
Whole Life Insurance
Whole life insurance is meant to last for your entire life. After you buy a policy, the coverage will stay in place as long as you pay the insurance premiums. A whole life insurance policy could be a good fit to help cover long-term needs like final expenses, leaving an inheritance or donating to charity.
Universal Life Insurance
With universal life insurance, you have the flexibility to change how much your premium is each year. However, you do need to pay enough into the policy to cover the insurance costs or your policy could lapse. These policies take a little more planning than whole life to get the target premium correct, but may be able to offer life insurance coverage during retirement at a more affordable price.
Term Life Insurance
Term life insurance coverage lasts for a specified amount of time. When you buy a policy, it has a set expiration date. If you pass away during this time, your beneficiaries receive the death benefit. But if you outlive the term, your coverage will end. When you buy these policies as a senior, the insurance company may also set a maximum age limit for how long they will last. While term life insurance is more commonly used by people who are working, it could still be useful in some situations for seniors.
Life Insurance for Seniors Over 50
If you're considering life insurance in your 50s, you may want to think about whether the coverage will be for while you're working or for retirement. This may help you narrow down which policy might make sense. If you're still working and your family depends on your income, it may be a good idea to consider term life insurance. You could likely purchase a larger amount of coverage and set up a policy that lasts for the rest of your career.
If you're in your 50s, it may also be a good time to consider whether you want your policy to cover your final expenses and medical bills, and leave an inheritance. In this case, whole or universal life could be a better fit because these policies will not expire and can last for the rest of your life as long as you pay your premiums.
As an added benefit, when you buy a permanent policy in your 50s, your policy may have time to build cash value, which is money you could use while still alive. Just keep in mind that withdrawing the cash value will reduce the death benefit and the account value and could cause the policy to lapse.
Life Insurance for Seniors Over 60
If you're in your 60s, chances are you've retired or retirement is in sight. It may be a good time to reevaluate your current life insurance policies to see if they still make sense. If you have term coverage that will expire in the future, consider checking to see if you can convert it to whole or universal life insurance. Keep in mind that you may have to go through underwriting if converting your coverage is an option. Some policies include a guaranteed conversion feature, which allows you to switch some or all of the term coverage to permanent coverage without having to go through underwriting.
This could also be a good time to decide whether you would like to purchase any additional coverage to help pay final expenses, leaving an inheritance or covering estate taxes.
Life Insurance for Seniors Over 70
Qualifying for life insurance in your 70s can be a little more challenging, but it's still possible for many seniors. Life insurance companies typically don't charge an application fee so it's free to check whether you can still qualify.
If you've developed some health issues and can't qualify for regular life insurance, there are also guaranteed issue policies. These policies are for smaller amounts, and they have more lenient health requirements and do not require a medical exam. You may be able to qualify even with pre-existing health conditions. In exchange, these policies charge a higher premium than regular life insurance.
Life Insurance for Seniors Over 80
If you're in your 80s, you've reached an age where some life insurance companies may not be willing to accept your application. But once again, it all depends. Some life insurance companies still accept applicants in their 80s, especially for smaller guaranteed-issue policies.
There are also strategies that may help you qualify at this stage of your life. For example, you may be able to transfer part of your savings to buy a policy with a single, large lump sum payment. Rather than leaving your beneficiaries cash, you may be able to leave them more money through life insurance. If you meet with a financial representative, you can find out what options you have.
Applying for Life Insurance
If you'd like to purchase life insurance, you'll need to complete the application process. While the exact procedure depends on the company, chances are that you will go through some variation of these steps.
1. Pick a Life Insurance Company
The first step is to consider which life insurance company to work with. You have many options to choose from. If you know what type of life insurance policy you'd like, this could narrow down your search as some companies will not offer every type. You might also consider using a company that has a strong financial strength rating and regularly works with seniors. They may be able to more effectively review your medical history and financial needs to come up with a suitable offer.
2. Reach Out for Information
Once you've decided on a life insurance company, you can reach out to them to start the application process. Some companies allow you to apply online, especially for smaller policies. In other situations, you may need to meet with a financial representative. Even if you can apply online, it might still be helpful to talk to a representative so they can answer your questions and help keep your application on track.
3. Submit an Application
Next, you'll need to submit a formal life insurance application. The application will likely ask for your contact information, income, medical history and other questions about your health and finances. At this time, the company may be able to give you an initial quote, estimating how much you'd owe for the insurance. But you likely won't get a formal offer until after underwriting.
4. Qualify Through Underwriting
Underwriting is when the insurance company reviews your application and medical history. As part of this, they may review your health records. They may also ask you to meet with a medical provider to provide blood and urine for testing, and to go through a basic physical. With this information, the life insurance company can decide whether you qualify and at what price.
5. Review the Policy Offer
The life insurance company could decline you for coverage, but if they decide you qualify, they will likely give you a formal offer that includes the price they will charge you for coverage. If you're happy with the terms, you can sign the contract and pay the premium.
Life Insurance Costs for Seniors
Life insurance for older people can get more expensive for a couple of reasons. First, an older applicant has a shorter average life expectancy, so they may have less time to pay premiums than a younger applicant. Since they typically make fewer payments, they may be required to pay more per month to cover the insurance cost.
In addition, life insurance companies typically charge more when someone has a medical issue, as this increases the person's risk of dying. As you get older, you're more likely to have preexisting conditions that could lead to higher costs. But with that in mind, it may still be possible to find life insurance for older people at an affordable rate even after you retire. Some of the strategies that might help you include:
- Take out a smaller policy: The more coverage you buy, the more expensive the policy will be. It may help reduce costs if you purchase a smaller policy.
- Apply as early as possible: Life insurance typically increases in cost as you get older. For instance, applying in your 60s or 70s could give you more options than applying in your 80s.
- Improve your health: Any health improvements could help you lower your insurance cost, whether that's losing weight, quitting smoking or following your doctor's orders to control a condition like high blood pressure.
- Consult with a financial representative: A financial representative may be able to come up with a strategy that helps control your costs. It might be worth having a discussion about your options.
Life insurance can be a valuable tool at any age. By considering this information and working with a company that understands the needs of older people, you can determine your life insurance strategy in retirement.