Having a late-stage life plan is crucial these days. With Americans living longer than ever before, strong financial planning is a necessity. While you may think you have enough in savings, a serious illness or other financial setback can leave you unprepared to pay for final expenses. Life insurance for seniors can help pay for things like funeral expenses, medical debt, loss of income, and more. Below, we explore all the advantages of a good life insurance policy.
Why Seniors Need Life Insurance Now More Than Ever Before
Many people believe that once you get into your twilight years your obligations decrease, and your need for life insurance diminishes. But the truth is that seniors often have equal, if not greater, needs. Here are 5 key reasons why life insurance for seniors is a necessary consideration.
People Are Living Longer
Men live on average to age 84 and women to age 87, according to the Social Security Administration. In 1950, it was 66 and 71, respectively. This increased life expectancy is putting a strain on Social Security, Medicare, pension funds, and retirement savings. Once Seniors only had to budget enough money to get them to about age 65 or a bit beyond, but now they must find the means to support themselves 16-18 years longer. While some older people have combatted this issue by staying in the workplace longer, there are those who do not have the health to do so. This leaves many older couples wondering if they have enough savings, pension, or other income to support them through the remainder of their lifetime.
For those who worry that their existing savings and retirement income may not cover all needs, a life insurance policy can act as a financial backup plan. Policies that accumulate cash value can be borrowed against to satisfy current expenses. The funds are taken as a loan and can be used toward any financial obligation. These loans generally have a low interest rate and do not require a credit check. Money borrowed from a cash benefit is also tax exempt.
Some life insurance policies also earn dividends. The dividend amount will vary based on the amount paid into the policy, and may be subject to taxes. This money can accumulate interest with the insurance company or be paid as a check to the policy holder. Dividend amounts can increase over time, which can result in higher payouts. These payouts can be used to satisfy living expenses or to offset the cost of premiums.
You are probably aware that increased medical costs are causing a financial strain on American families. It’s reported that 62% of all personal bankruptcies in the U.S. are a result of medical debt, and seniors are not immune. The biggest threat to a senior’s credit health is a medical crisis. A serious illness or the need for long-term care can trigger a major breakdown in finances, especially given that many individuals base their retirement savings on medical forecasts that are not realistic.
An affordable life insurance policy for seniors can help provide some insulation against medical debt. Some permanent life insurance policies feature accelerated benefits for terminal illness. Some of these plans allow access of up to 90% of the face value through living benefits. These benefits are a portion of the death benefit that can be used prior to the passing of the policy holder. Monies can be taken as a lump sum or as installments and spent on medical bills or other debts. Accessing living benefits may reduce the value of policy’s overall death benefit.
Raising a Second Family
You may believe that life insurance for seniors is not as necessary as it is for younger couples with dependent-age children at home. However, more and more seniors are parenting one or more of their grandchildren. One in 10 children are living in the same household as one of their grandparents. For about 20 percent of these children, their parents are not present in their lives, and their grandparents are completely responsible for their care. For many seniors, raising another family wasn’t included in their retirement planning. Many face financial challenges when they take on healthcare costs, housing, and higher education funding for their dependent grandchildren. Life insurance for seniors may be necessary to ensure that a guaranteed benefit is left behind to take care of a grandchild.
Many seniors on a fixed income also may want to leave behind a guaranteed benefit for their adult children. A tough economy has many seniors supporting an adult child and/or taking on their debt (directly or by co-signing for loans).
Many older adults are carrying mortgage debt as they get into their retirement years. In 2011, one-third still had a mortgage by the time they were age 65 and older. This is a 22% increase since 2001. The amount of debt owed in 2011 was a median of $79,000 compared to the previous decade when it was $43,400.
The reasons for the debt span from using equity to pay off other debt, paying for college, and taking in adult children during the recession. Those with mortgages who experience sudden changes in expenses (like a chronic illness) can see their retirement savings dip drastically and may even face foreclosure.
If you are still carrying a mortgage or other large debt, a life insurance policy is a way to avoid burdening your family with these expenses. If you are still working or have another form of income that may be lost if you pass away, a life insurance policy can be critical so that your spouse or another family member may be able to pay off the home.
Loss of Pension
In addition to medical debt, shrinking pensions have contributed to the rising number of seniors who are filing for bankruptcy. Many Americans have been left with a poorly funded retirement because of the move to 401K plans instead of traditional pensions. The ability to borrow from the cash value of a life insurance policy when unexpected expenses arise can provide a safeguard from potential financial ruin.
A person who is dependent on his or her spouse’s pension income may suffer a financial loss if that spouse passes away, especially if the pension income is reduced or lost at time of death. Receiving a payout from a life insurance policy can help to supplement or replace this loss.
Types of Life Insurance
Below are the basics of best life insurance policies for seniors.
Whole Life Insurance
- Provides death benefit for the policyholder’s lifetime
- Offers great safety and security
- Higher but more stable premiums
- Accumulates cash value
Universal Life Insurance
- Customizable coverage
- Greater flexibility
- Ability to set lower premiums
- Guaranteed cash value
- Can provide death benefit for the policyholder’s lifetime
Indexed Universal Life Insurance
- Builds cash value based on stock market index it’s attached to
- Family can receive larger benefit
Term Life Insurance
- Low cost
- Choose the length of the policy term (up to 30 years)
- Medical exam not required for simplified issue plans
Final Expense Insurance
- Dedicated funds for burial and related expenses
- Easy to qualify for
- Low cost
- May accumulate cash value
4 Ways Seniors Can Use Life Insurance Policies
Choosing the best life insurance for seniors requires an understanding of the end goal. If you are thinking about purchasing a policy, ask yourself who and what you are trying to protect. By doing so, you can be sure to select the type of policy that meets these goals. Below are 4 common reasons seniors seek life insurance protection and which policy type may best serve each consideration.
Covering Burial Expenses
People of all ages seek life insurance policies to assist with the cost of passing away. Many worry that when they pass, there may not be enough money to cover a funeral or burial and they do not want to burden their family with the expenses.
Having some affordable life insurance for seniors will help to cover these expenses and more. A final expense policy can supply monies to cover the cost of laying someone to rest, and it may cover any additional expenses that a loved one leaves behind. This can include unresolved debt, outstanding medical bills, or fees associated with settling an estate.
Protecting a Spouse/Child
Probably the single biggest motivator behind purchasing life insurance for seniors is the desire to protect a spouse, disabled child, grandchild, or other loved one. When a person passes, they leave behind unresolved debt. It could be in the form of a mortgage, car, or outstanding loan. If you have someone who depends on you financially, such as a spouse or disabled child, they may struggle to maintain an adequate lifestyle without your contribution.
Choosing a universal life insurance policy can supply a death benefit for survivors. It can help those who live on to better manage their finances, and it can provide additional money for someone who might need care, like a dependent child. You can elect for your beneficiaries to receive this amount in two ways: as a lump sum or as distributions. Distributions keep an even supply of money coming in to satisfy monthly living expenses.
Leaving a Legacy
The motivation for purchasing life insurance for seniors includes having extra savings or ensuring that a guaranteed benefit is left behind for loved ones. But other reasons include creating a means to make a financial gift. Many seniors will use a life insurance policy to make a donation to a favorite cause by naming a charity as the beneficiary. Often, a death benefit can be left to an organization of your choosing in complete privacy.
Some seniors will also use a life insurance policy as a way of leaving money to a grandchild. This can be used to help fund a college education or business venture.
Protecting Against Estate Taxes
Some seniors with large estates that include things like big homes or expensive cars may consider a life insurance policy as a means of transferring their wealth. The higher your net worth, the higher your tax liability becomes. Seniors with a good life insurance policy can leave the next generation money without worrying about the inheritance tax.
Often, whole or universal life insurance coverage works best. This is because though permanent insurance policies allow for the accumulation of cash, the death benefit can be used to cover taxes.
When Is Life Insurance for Seniors Not a Good Choice?
While most life insurance policies for seniors are offered up to age 80, there may be a point when making a purchase is not possible or does not make financial sense. Life insurance premiums are often based on factors such as the age and health of the person applying. If your age is advanced, or a health condition causes high premiums, it may not make sense to make the purchase. The cost could be prohibitive to the financial goal you are trying to achieve.
These same factors may prevent you from qualifying for the policy. The answer may be to look at another option like final expense insurance, or some other guaranteed issue option where age and health is less of a factor.
Finally, if you do qualify for life insurance despite a health condition, your full death benefit may not be available for the first two years of the policy. If you think you have a life-threatening condition that may result in premature death, consider whether or not you will survive long enough for your loved one to receive the full benefit.
Am I Required to Get a Medical Exam?
Most life insurance policies do require some level of medical underwriting. This means you could be required to either see a doctor (fully underwritten) or answer a health questionnaire (simplified issue) that an agent can help you to submit. If you are looking to avoid a medical exam, look for policies that are simplified issue. There are certain types of term and permanent life insurance policies that do not require a full medical examination.
What Will Life Insurance Cost Me?
The cost of affordable life insurance for seniors is determined by variables like the type of policy, the benefit amount, and the ability to build cash value. Additional factors that can further alter the cost of premiums is age, health, family health history, and tobacco use. A licensed agent can help you to compare plans and find the best deal.
HealthMarkets Insurance Agency can show you how purchasing life insurance can be worthwhile. We can help you to find the right insurance solution for your needs. If you are seeking a life insurance policy for a senior, call (800) 917-4169 today. You can also visit us online to learn more about our life insurance products, or to find an agent in your area.