The Complete Guide to Buying Senior Life Insurance
Senior life insurance helps you plan your family’s financial future. Thus, easing the financial burden for your loved ones in the future. Luckily, there are several options for senior life insurance. Here is all you need to know about life insurance for seniors.
What Is Senior Life Insurance?
Senior life insurance is the same as life insurance at any age. However, life insurance for seniors is priced and marketed differently. The difference is because seniors have special needs and financial situations. Most senior life insurance is bought by individuals aged between 50 and 85.
There are various types of senior life insurance. The common types are term life insurance and whole life insurance. To get life insurance coverage as a senior, you will need to undergo medical examinations. The good news is that some insurance companies issue life insurance coverage without a medical exam. However, it is rare to find insurance companies with less strict underwriting rules.
It is crucial to know some of the exclusions in senior life policies. Some specific causes of death might not be covered, depending on the terms of the policy. Events like suicide and private plane crashes could prevent the payout of an insurance claim. For example, during the first two years of a policy, should the policy holder end his or her own life, there is no payout. However, after two years, there would. When it comes to private pilots, if the policy holder did not disclose they were a pilot at the outset and then they crash a plane, there is no payout. However, if it was known at the outset, the insurance claim would pay.
Withholding information regarding pre-existing health conditions could also prevent paying out of insurance claims.
Reasons Why Seniors Need Life Insurance
Even if you have enough savings, medical emergencies and other financial setbacks might lead you to bankruptcy. Life insurance gives you and your family time to adjust in the event of a financial crisis. Here are other scenarios where life insurance will come in handy:
- If you have a significant amount of debt that others will have to repay in the event of your death
- If you are a breadwinner, life insurance ensures that your dependents still have some income after you pass away.
- If you have a high net worth and want to cover estate expenses.
- If you wish to cover your final (burial) expenses
- Life insurance is also a way of providing an inheritance to those you leave behind.
Types of Life Insurance for Senior Citizens
Term Life Insurance
Term life insurance is also known as pure life insurance. It is temporary coverage that guarantees payment of a stated death benefit in case the insured dies within a specified period, usually 10-20 years. The policy has no other value other than the guaranteed death benefit. Once the policy term expires, the insured can renew it or sometimes convert it into permanent coverage.
The policy premiums are determined based on the policy’s value, age, gender, and underlying health conditions of the insured. It provides the cheapest option for life insurance if you are in great health. If you die during the policy term, the insurer pays the death benefit to your beneficiaries. Fortunately, in most cases, the death benefit is not taxable. If you die after your policy has expired, the death benefit is not paid.
Whole Life Insurance
Whole life insurance provides lifelong death benefit coverage for the policyholder. The death benefit is paid to a beneficiary upon the insured death provided that the policy was in force. Besides the death benefit, whole life insurance has a cash saving component, called the cash value. The policyholder can draw or borrow from the cash-saving component.
The insured remits payments more than the scheduled premiums to build the cash value. These payments are called paid-up additions. Policy dividends can also be reinvested into the cash value and earn interest. The cash value serves as a source of equity and offers a living benefit to the insured.
Guaranteed Issue Life Insurance
Guaranteed issue life insurance is a policy that does not require you to undergo medical examination for acceptance. For this reason, it is called ”no questions final expense insurance” or ”guaranteed acceptance life insurance.” This option is worthwhile if your health does not qualify you for normal whole life insurance.
However, guaranteed issue life insurance has a waiting period. If you die during the waiting period, your beneficiary won’t receive the death benefit. The insurance company will only refund your beneficiaries the premiums you paid if you die during this period. The waiting period is two years by most companies.
Funeral insurance or final expense insurance pays for funeral services and merchandise costs after death. These plans are bought from funeral homes. The policy can be bought online or by telephone since they do not require a medical exam. Some plans require a two-year premium payment before collection is possible.
Funeral insurance is a cash policy that builds a cash value over time. Unlike term and whole life insurance, funeral insurance can be bought for small amounts. It is more affordable than the other two. Premiums are paid at a constant rate for all ages. In addition, the policy provides permanent coverage. Funeral insurance covers funeral expenses such as funeral service, cemetery plot, casket, and other related costs.
Guaranteed Universal Life Insurance
This is a form of permanent life insurance. It is unique because it never expires – provided the premiums are paid. Some companies offer a return of premium. Return of premium allows you to take a full or partial refund on paid premiums if you no longer need coverage. These policies offer some flexibility, such as reducing the death benefit amount in the future if needs change.
A guaranteed universal life policy may or may not include a cash value component. Those that do have a minimum cash value growth compared to whole life insurance. You have a guarantee of coverage regardless of age, health, or changes to the market.
Cost of Life Insurance for Seniors
An insurance cover cost is directly proportional to what the insurer is willing to risk. With life insurance, the premiums are higher if you have a higher likelihood of dying. Insurers evaluate several factors to determine the level of risk they assume. Below are some of the factors that will determine how much premium you pay:
- Type of life insurance policy
- Duration of coverage or its value
- Gender at birth
- Underlying health conditions
- Occupational hazards
- Driving record
- Tobacco use
How to Shop for Senior Life Insurance
Before purchasing any life insurance, you should consider if the coverage matches your financial goals. For instance, if you want a life policy that could cover your mortgage payments or outstanding debt, a term life policy will do for you. If you aim to cater to your burial expenses, you might consider funeral insurance. Consider a guaranteed universal life policy if you want to leave an inheritance to your loved ones.
Before you purchase a policy, consider these three guidelines:
- Shop around. Compare death benefits and premiums for different insurers. Comparison will help you determine the right policy for your budget.
- Consult an advisor. You can work with an advisor to help you choose the right policy for your situation. We’d love to talk!
- Read the terms and conditions carefully. Pay close attention to exclusions. Be aware of details such as the causes of death not covered and what happens if you can’t pay premiums.
Life Insurance Riders
Riders help you customize coverage. Life insurance riders provide additional benefits to basic life insurance at additional costs. Here are eight common riders:
Guaranteed Insurability Rider
This rider enables you to buy additional coverage during the period of coverage without a further medical examination. It is beneficial if there is a significant change in your life circumstances like increased income. It can also provide renewal for your policy upon expiry without further medical examinations.
Accidental Death Rider
An accidental death rider pays an additional benefit if the insured dies as a result of an accident. This rider is also called double indemnity. The name, double indemnity, is because it pays twice the death benefit amount in the event of accidental death.
Waiver of Premium Rider
Waiver of premium rider waves future premiums if the insured becomes permanently disabled. It also waives premiums for those who lose income due to injury or illness. However, the term ‘permanent disability’ varies from one insurer to another.
Family Income Benefit Rider
Family income benefit riders provide a steady flow of income to your family upon death. You need to determine in advance the number of years your family will receive the benefit. This rider is for individuals who are the sole breadwinners of their families.
Accelerated Death Benefit Rider
They allow the insured to use the death benefits if diagnosed with a terminal illness. The insurer advances part of the death benefit to the insured. The insurance company will subtract the amount you receive from what your beneficiaries will receive on death.
Child Term Rider
Child term rider provides a death benefit for young children of the policyholder. Upon maturity of the children, it may be converted to permanent coverage. The child also won’t require a medical examination.
Long-Term Care Riders
Long-term care riders offer payments if the insured has to receive nursing care. The payments are made monthly. It also covers those who receive home care.
Return of Premium Rider
Under the return of premium rider, the insurer returns your premiums if you don’t die during the policy term. The premiums may be returned in full or partially. In the event of your death, your beneficiary receives the paid premium amount.
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