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As you get older, your financial responsibilities may evolve. Perhaps you've built up a secure nest egg, or your children no longer financially depend on you. Or maybe the term life policy you bought years ago is about to expire. As you settle into your new stage in life, you might wonder if you need to purchase—or renew—your life insurance as a senior. These policies are still available to older adults, and they can provide support for you in multiple ways.
What Are the Benefits of Having Life Insurance as a Senior?
Seniors who are retired or approaching retirement may not think a life insurance policy can serve them, but it could provide an important safety net. Here are some benefits of having life insurance as a senior.
- Living benefits: This is a rider that's available in some term life and permanent life policies, and it allows you to receive all or some of your death benefit while you're still alive and diagnosed with a serious illness. For instance, if you have a qualified diagnosis and a specific life expectancy, you can use the money for medical treatments and to make your final days more comfortable.
- Cash value growth: Many permanent life insurance policies have a built-in savings component called cash value, which is separate from the death benefit and grows over time. You can make withdrawals or borrow from the savings component. Some people tap this benefit to cover significant expenses such as retirement income, a child's education or emergencies.
- Final expenses: Life insurance can still offer financial support even if your kids are grown, you have a well-stocked retirement account and you've cleared all of your debts. Your policy can cover burial costs and other final expenses, removing the financial burden for your family.
- Inheritance: A life insurance policy can also provide a tax-advantaged inheritance to your beneficiary, since they won't pay income taxes on the payout. Your beneficiary could be an heir or even a charity you support, allowing you to leave a legacy.
What Are Your Life Insurance Options as a Senior?
Before you shop for life insurance plans, think about why you're buying the policy. For instance, are you looking to cover funeral costs, leave an inheritance to your kids or financially provide for a spouse? Determining these details can help guide your decision. Here are your main options for buying life insurance as a senior.
Term Life
A term life insurance policy provides coverage for a specified term, such as 10 or 20 years, and your beneficiary receives a death benefit if you pass away within that term. Life insurance companies will typically sell these policies to you if the term ends before you turn 80.
Generally, buying a new term policy later in life can get expensive. But it can still be a good fit for older adults in their 60s and 70s who need to cover major expenses for a few more years. For example, the death benefit could pay off the balance on your mortgage or cover living expenses for your loved one.
Whole Life
Whole life is a type of permanent life insurance policy that provides guaranteed coverage for the remainder of your life, as long as you keep up with payments. While whole life is pricier than term life, it provides a guaranteed payout and develops a cash value that grows over time.
These features can be important to a senior who wants to use the policy to cover medical bills while alive, pay for their funeral expenses or provide income for family members after they're gone.
Guaranteed Universal Life
Guaranteed universal life is another type of permanent life insurance policy, so it provides lifelong coverage as well as a death benefit and a cash value that grows over time. But unlike whole life, you can adjust the premiums and death benefits within certain limits.
These features make universal life insurance a good fit for seniors who want to leave an inheritance—but also want the flexibility of making changes in case their financial situation changes.
How to Buy the Right Life Insurance Policy
Here are some tips on buying the right life insurance policy for your situation.
Consider Factors That Affect Your Premium
The cost of life insurance generally increases as you age, so a senior can expect to pay more compared to a younger person. But other factors such as your medical history and gender will also affect your premium.
You may need to complete a health questionnaire and undergo a medical exam as part of the application process. Insurance companies usually want to know about your own health status, family medical history, lifestyle and job. Factors like drug use, obesity or serious medical issues may cause you to pay higher rates or potentially have your application declined.
Decide on the Type of Policy
Your goals for the life insurance policy can help you determine which type of life insurance to get. For instance, term life can be a good fit if you want temporary coverage and you're on a budget. Or, you may choose whole life or universal life if you're looking to build cash value and leave a guaranteed payout to your heirs.
Determine if You Need Riders
Life insurance comes with basic benefits depending on the type of policy you buy. But you can usually customize your policy further using life insurance riders, or add-on services. Each insurance company may have a different menu of riders to choose from, but some common options include:
- Long-term care: Pays for long-term care expenses while you're still living, such as nursing home care or in-home care.
- Waiver of premium: Pays the premium for your policy if you become disabled.
- Accidental death benefits: Pays an additional death benefit if you die in an accident.
Calculate How Much Life Insurance You Need
Once you decide which type of insurance policy to buy and whether you need riders, you'll need to determine the dollar amount of the death benefit. Consider how much you'd like to leave to your beneficiary, and weigh it against your budget. A larger death benefit generally translates to a higher premium.
Shop Around for the Best Policy
Life insurance rates can vary with each company because they all have a different formula for setting premiums. One of the best ways to save money is by getting a customized life insurance quote from multiple companies. Then compare those policies side by side, looking over the price and coverage options. Also check each company's reputation for claims handling and financial solvency.
The Bottom Line
Your financial responsibilities may draw down as you get older, but you could still benefit from a life insurance policy. You may be able to tap the policy while you're still living, or use it to leave a payout to your beneficiary.
When you start comparing policies, look for ways to save money. Some states allow insurance companies to use your credit-based insurance score when calculating premiums. If your state allows this practice, then improving your credit before purchasing life insurance could help you score a better rate. You can get a copy of your credit report and check your credit score for free with Experian, then address any issues you find on your report.