Life insurance for seniors

Why should seniors buy life insurance?

Life insurance can be a vital piece of a long-term financial plan for seniors and offers you peace of mind that your loved ones won’t get stuck with hefty end-of-life bills.

William Scott Page, CEO of LifeGuide Partners says reasons that a senior would want life insurance include:

• Estate planning
• Covering burial expenses
• Funding a loved one’s college expenses
• Replacing lost income for a spouse

"The primary reasons I see seniors purchasing policies include still having debt after retirement, still earning outside income and needing to account for its replacement, their family not being self-sufficient without them, and to benefit their estate,” Page says. 

Consider that, even with substantial savings, an illness or medical expenses can deplete your financial reserves, leaving little behind for your family after you die.

"Life insurance for seniors can cover funeral, burial, and final expenses as well as pay for medical and credit card debt," explains Randy VanderVaate, president/owner of Funeral Funds of America.

Many older people also purchase life insurance as an estate planning tool to offset estate taxes.

"Seniors who have outstanding mortgages or loans may benefit from such policies. Also, those who are concerned with the unpleasant costs of death, especially if their heirs are not in a good financial condition to handle such an expense, may want to choose a life insurance policy," suggests Eric Estevez, owner of HLC Insurance Broker.

People under 85 often qualify for life insurance policies -- though the options are more limited than if you bought a policy at 40 years old. Seniors in good health have more options, while those with health problems will have to look to no medical exam or guaranteed acceptance policies, but can still get some coverage.

Types of life insurance for seniors

There are several different types of life insurance products for seniors to consider.

Term life insurance

Term life policies are usually more affordable and offer a higher death benefit payout than permanent life policies. However, they’re only offered up to a certain age (often age 80), so many seniors may not qualify for term life.

Term life insurance policies have higher coverage amounts for lower premiums than whole life policies. However, term life policies only cover you for a period of time, such as 10 or 20 years. In most cases, the premium is set for the life of the policy, which expires at the end.

"Term insurance is useful primarily for income replacement if the insured dies while he or she is working and has a surviving spouse or children who are dependent on that income," says Elinda Kiss, associate clinical professor of finance at the University of Maryland's Robert H. Smith School of Business. "This policy is best when there is a specific need, such as retirement debt that needs to be paid off. But it will not pay out if the policyholder dies after the term expires."

Whole life insurance

With a whole life policy, you can accumulate cash value that can be used to pay for premiums in the future or borrowed against if you have a financial need. The premiums never increase, and the coverage never decreases or expires. However, these benefits will result in higher premiums.

"Whole life insurance is primarily useful for avoiding taxes. The ability to accrue and borrow against the cash value has a drawback: The insurance company will deduct the amount outstanding from the death benefit," notes Kiss.

Permanent life insurance policies like whole life also allow you to add riders, which can help you while you're still alive. For instance, terminal illness riders may let you tap into your policy to help pay for medical expenses.

Guaranteed universal life insurance

Guaranteed universal life insurance offers affordable lifelong coverage with guaranteed death amounts and a possible return on your premiums if the policy accumulates cash value.

"These policies grant the ability to actively invest the policy's cash value, which can be great for those with the time to reap the return on interest. However, older people will not have time to have the investment grow," Kiss says.

"A guaranteed universal policy offers a death benefit and premium payments that will not change over time. Because guaranteed universal insurance has little or no cash value, it is cheaper than other types of universal life insurance,” Kiss adds.

Final expense life insurance

Final expense life insurance is geared toward seniors who want to pay their end-of-life expenses like burial, cremation, medical, or estate costs. Your premium remains the same, and the policy doesn’t expire, but this insurance is more costly than term life insurance.

Final expense policies will likely only provide enough death benefits to cover final and funeral expenses. The full death benefit, usually $5,000 to $25,000, won’t provide income replacement for your beneficiaries. 

However, final expense life insurance usually doesn't require a medical exam or even any health questions. It's often a guaranteed issue policy, which means everyone will qualify for at least some amount of coverage.

"Be aware that the cost per $1,000 for this type of policy is very high because there are no medical questions required; therefore, healthier people may pay the same high rates as those who are not as healthy," cautions Kiss.

No medical exam life insurance

No medical exam life insurance, also commonly referred to as simplified issue life insurance, may ask some health questions but doesn't require a medical exam. This type of coverage can be either term or whole life and tends to be a bit more expensive than a traditional policy because the life insurance company knows little about your health.

While there are more options than ever before for this type of coverage, including policies you can buy online, people over 80 will have a hard time qualifying.

How much does senior life insurance cost?

Premium costs for a life insurance policy for older adults vary based on multiple factors, including:

• Policy type
• Age
• Health condition
• Death benefit
• Life insurance company

For life insurance companies, it’s all about risk. Because seniors are a higher risk than younger people, the average cost of life insurance will be higher.

Because life insurance rates are so personal, the best way to find out what you'll pay is to get some quotes.

How to buy a senior life insurance policy

As with any insurance policy, it's strongly recommended to shop around and request multiple insurance quotes from companies when buying life insurance. You can shop online, contact the insurance company directly or work with an insurance agent.  However, there are a few things seniors should keep in mind.

• Avoid policies with waiting periods if possible. Some policies marketed to seniors have a two or three-year waiting period before the full amount of coverage kicks in. For some, this type of policy is the only option, but if you qualify for a policy without this waiting period, it's a better choice.
• Don't count on convertible term life. Term life policies are cheaper and can often be converted to permanent life later without a medical exam. However, your age will impact what you pay for that permanent policy, so if that's what you want, you're better off buying one in the first place and locking in a lower rate.
• If you're healthy, take the medical exam. Fully underwritten policies often have lower rates because the company is taking on less risk by knowing your health status.