The Ultimate Guide to Life Insurance for Seniors
You may think that after you reach a certain age you no longer need life insurance, but that’s not always the case. Here’s what you need to know about life insurance for seniors, including when it might be needed and the best types to consider.
Life insurance is like going to the dentist, but worse. We know that it’s a topic we should discuss, and we know it hurts us to avoid the topic forever, but we just don’t like the prospect of dealing with it. And besides, there will be more time to talk about it tomorrow anyway.
Here’s the thing: you need to talk about it because you need to budget for it if life insurance is a necessary retirement expense.
Most Americans close to retirement have only saved about 12% of what they actually need to retire. That’s a big deal considering that 21% of retirees had less than $1,000 saved for retirement and the number of Americans over 60 with student loan debt has quadrupled.
Here, we’re walking you through everything you need to know about life insurance for seniors, including how to figure out if you need it and the types of life insurance policies available.
Why Seniors Need Life Insurance
Life insurance is the odd duck of the insurance family. If you insured a car that you later sold, you wouldn’t say, “But I paid all this money to a policy and got nothing out of it!” You’d be relieved that you never needed to use your insurance.
And yet, that’s exactly what we do with life insurance because, well, we’re rather attached to our lives.
The thing is, life insurance (despite the name) isn’t purchased to insure your life. No insurance policy can put a monetary value on your life. Life insurance is actually purchased to compensate for the financial hardship that your loved ones would experience if your life ended.
There’s no arguing that life insurance is important. The trick is to figure out whether life insurance can actually help you (and whether it’s an expense you can afford in retirement).
Factors to Consider
So, life insurance is mean to protect your spouse and loved ones from financial hardship if you die unexpectedly. Sounds like something everyone should have, right?
Not so fast.
You see, the key idea here is financial hardship. A big consideration is whether there would be any financial hardship that makes life insurance necessary.
If, for example, your spouse has enough of their own assets to get by after you’re gone, if you’ve built up a decent nest egg, or if your children no longer rely on you, life insurance might not be a necessary expense.
Here are a few considerations to keep in mind.
How Long You Plan to Work
Anyone nearing the golden years of retirement knows it: the longer you work, the less time you need to draw on your savings.
Add in the collapse of the housing market and the Great Recession, and people are feeling a lot less secure in the money they have.
If you are planning on working longer, sit down with your spouse and loved ones to take stock of your assets, debts, and insurance relative to when you plan to retire. Better yet, do it while running through the rest of your pre-retirement checklist.
Whether or not you actually need coverage depends on the results of those calculations.
If you have life insurance through your employer and plan on sticking around for a few more years, there’s no reason to take out an extra policy that will eat away at your savings.
The Independence of Your Loved Ones
The point of life insurance is to provide financial security for those you leave behind.
If you have a policy or are considering purchasing one, it’s important to consider your family’s needs (and how those needs will shift over the course of your retirement).
If your kids are all grown up and have their own careers, or you’ve saved enough for your spouse to pay the bills, life insurance may not be necessary.
If, on the other hand, your children are younger, or if your spouse needs (or will need) long-term medical care, a life insurance policy is a good idea.
Types of Life Insurance for Seniors
Term life insurance is one of the best-known forms of life insurance because, for the most part, it offers the most coverage for the lowest price.
Term life insurance works by providing coverage for a set number of years, usually 10 to 30 years in increments of five. It also guarantees that premiums are the same every year.
Here’s the catch: available term life policies tend to go down as your age goes up. Most companies don’t offer 30-year policies once you hit 50 to 55, 20-year plans are available until you hit about 65, and seniors in their 70s are often only able to purchase 10-year plans.
Whole life insurance works a little differently. As the name implies, it provides a death benefit as long as you keep paying the premium, and it accumulates cash value over time.
Cash value works like putting money into a retirement account–you can accumulate money on a tax-deferred basis and even borrow from the policy for a down payment on a home or for retirement income.
This type of policy is more expensive and thus less common among seniors. Usually, it’s purchased for one of a few specific purposes:
- You want to leave a certain amount to a beneficiary
- You want to use it to minimize estate taxes
- You’re using the policy loan option
The cutoff for purchasing this type of policy is 75-80 years old, and your health and age factor into your ability to qualify.
Final expense insurance is a specified type of life insurance meant to pay for end-of-life financial needs, usually funeral costs or medical bills.
Like whole life insurance, coverage lasts as long as you continue to pay the premiums, and this type of policy can grow a cash value.
That said, policy amounts tend to be more modest than other forms of life insurance, but since the money is earmarked for a specific purpose, you won’t need as much money in the policy anyway.
More Articles for Seniors
Now that you know a thing or two about life insurance for seniors, it might be time to sit down your spouse or family members to talk about whether life insurance is a practical option for you.
And if you need more ideas to make your life a little better, check out our lifestyle section for more posts.