Life Insurance for Seniors
Life insurance for seniors does not have to be expensive. Find out how to get a good policy at a reasonable rate.
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Do I Really Need Life Insurance at My Age?
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We tend to think of life insurance as financial protection against unexpected death. But it can also serve as a vehicle for financial security as you age.
In other words, life insurance can help you handle unexpected life events.
Consider these scenarios:
- You're diagnosed with a medical condition that leaves you with high out-of-pocket health care costs.
- Your spouse dies and you need to replace the loss of retirement and Social Security incomes.
- Your current term life insurance policy is set to expire.
- You have a mortgage, personal loans, and other debt you want paid off before or after you die.
- A disabled dependent relies on your financial support.
Or what if you are outliving your pension and Social Security alone isn't enough?
A life insurance policy with a savings and investment vehicle can help you build a new nest egg. It also can maximize your pension for your surviving spouse.
In short, life insurance can be very valuable to seniors. The key is buying a policy to meet your needs.
- What you want the coverage for
- What the plan provides
- How to find the best affordable life insurance for your needs
Types of Insurance for Seniors
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Seniors have six options when looking to buy life insurance. Each has advantages and disadvantages.
Term Life Insurance
This type of life insurance provides death benefits for a certain length of time. Terms range from 10 years to 30 years.
Here's How it Works
- You purchase a term of life insurance for a certain amount. For example, $100,000 for 15 years. You are given a quote for that coverage.
- You decide to complete an application for coverage. As part of the application, most term life policies require a medical exam.
You may also decide to add a rider to your term insurance coverage to secure the investment you are making in the policy. More about term life insurance rider options later.
- The application is accepted, you receive the policy, and you begin making monthly premium payments.
- If you die before the 15-year term is up, the beneficiary listed on your policy receives the $100,000 death benefit.
- If you are living when the term is up, your coverage ends. You have the choice of renewing the policy. However, your monthly premiums will be much more because you are 15 years older.
Seniors often select a high term coverage amount to pay off expenses they don't want to leave to their surviving spouse. This is debt beyond funeral and burial expenses. Some examples are a remaining mortgage, medical bills, and car loans.
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Whole Life Insurance
This is a type of permanent life insurance. It combines life insurance with savings and investment options. As such, it provides more than just death benefits.
Here's How it Works
- You indicate how much death benefit coverage you want. You receive a quote and then submit an application. The policy goes through the life insurance company's underwriting department to determine your risk factors.
Such risk factors include:
- Age
- Gender
- Health
- Medical history
- Whether you use tobacco products
- Your lifestyle
- Age
- You take the required medical exam and other requested tests based on your age.
- The insurer accepts your risk and issues your whole life policy. You pay the premium amount, either annually or monthly, for as long as you live.
- As you pay your premiums, part of the amount goes toward your coverage amount and a portion is invested by the company. The invested part is called the cash value of your policy. It also includes interest paid by the insurer.
The point of a whole life insurance policy is for you to use your policy's accumulated cash value while you are living.
You can use it to pay the rest of your premiums or withdraw it and spend it as you like. When you die, your beneficiary only receives the death benefit amount, not the accumulated cash value.
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Final Expense Life Insurance
This is similar to whole life insurance but with lower death benefits. It's the most popular type of permanent insurance among people ages 40 to 85 looking for minimal coverage.
Here's How it Works
- Final expense life insurance is guaranteed coverage. As soon as you apply, coverage begins almost immediately. How much coverage you select and your age determines your premium amount.
- Upon your death, your beneficiary receives a lump sum payment. If you die within two years of taking out coverage, the death benefit is reduced to the amount of premiums you paid, plus interest.
- If it's an accidental death within two years of coverage, your beneficiary receives the policy's total death benefit amount.
The policy's payout can be used to pay your final expenses, including funeral and burial costs, outstanding medical expenses, and any other debt you leave behind.
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Graded Benefit Whole Life Insurance
This is permanent life insurance for seniors who would typically not qualify for life insurance. It is designed for seniors with a medical condition that will worsen over time.
Like whole life insurance, it offers a guaranteed cash value and the premium amount remains the same.
Here's How it Works
- No medical exam is required when applying for this coverage. You select the amount of coverage and pay the applicable premium. However, your policy provides a timeline of graded death benefits.
- This means your death benefit amount starts out small, then gradually increases. After about five years, the policy reaches your desired coverage amount.
During this time, your policy still earns cash value. You can let the cash value build so it eventually pays the rest of your premiums, or you can withdraw it and use it as you please.
- If you die within the first two years of the policy, your beneficiary receives a death benefit in the amount of the premiums you paid to date, plus earned interest.
After two years, the beneficiary receives the full death benefit amount.
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Modified Benefit Life Insurance
With this type of whole life insurance, the premium amount fluctuates. For the first five to 10 years, you pay a lower premium, which then increases.
It's meant for seniors who don't have a lot to spend on insurance as well as those who expect an increase in funds later in life.
Here's How it Works
- The application process is the same as that of whole life insurance. You select a coverage amount, but rather than paying a fixed premium, it is structured differently.
- To start off, your premium amount is low, but your coverage amount remains the same. After five to 10 years, your premium increases to a set amount for the remainder of the policy.
- In essence, you pay less in the beginning because your risk of dying is low. You pay more when your risk increases.
All the while, your policy earns cash value and interest. However, the cash value accumulates slower during the years you are paying a low premium.
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Guaranteed Universal Life Insurance
This type of permanent life insurance is more flexible with its coverage options than whole life.
Here's How it Works
- The application process is similar to whole life insurance. You select an initial death benefit amount, but you can increase it at any time by taking a medical exam.
- The policy is guaranteed. This means you receive the amount of your death benefit regardless of how long you had the policy.
- You can also change the amount of premium you pay without impacting the amount of coverage. For example, you can decrease payments if other financial needs arise, then make up the difference later.
- The policy earns interest at money market rates. It is a guaranteed interest rate, so it will not drop below a certain level.
The savings can be used to lower your premium payments or to withdrawal the cash as you need it.
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Available Life Insurance Riders
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Riders are available as add-ons to both term life and whole life insurance policies at the time of purchase. They're a good way to tailor an insurance policy to your situation.
Not all life insurance companies offer riders. Likewise, riders work differently among different companies. Cost also varies, with your age and health being the key pricing factors.
Return of Premium Rider
A Return of Premium (ROP) rider can be added to a term life insurance policy. If you outlive the term, it allows you to get all the money back that you paid in premiums. However, it will increase your monthly premiums.
You should weigh the difference between the added cost and return of premium benefit.
Cost Comparison
Tom takes out a $250,000 term life policy for 30 years at age 38. His yearly premium is $562. If he adds on the return of premium rider, his yearly premium rises to $880.
Over the life of the term, Tom will pay $16,860 without the rider and $26,400 with the rider.
Would Tom be better served buying a permanent life insurance policy or forgoing the rider and investing the difference in an IRA instead?
With this rider, it's important to analyze all your options and choose the one that provides the best return on investment.
Guaranteed Insurability Rider
This rider is available with permanent life insurance products, like whole and universal life. It allows you to purchase more life insurance later on without a medical exam or proof of insurability.
The amount of additional coverage you can purchase is usually a set amount, like $10,000 - no more than your policy's coverage amount. Many seniors purchase this rider in case their health declines to ensure their death benefits cover added expenses.
Term Conversion Rider
With this rider, you can convert your term life insurance to permanent life insurance without a medical exam. Some term life insurance policies include this rider at no additional cost.
It's an option for seniors whose health has changed during their term insurance or want to avoid the higher cost of term insurance as they get older.
If you convert a portion of coverage, you will have two policies: one term and one permanent life. Here's why:
Let's say you have a 20-year, $250,000 term life policy that you've been paying on for eight years. The company's conversion deadline is within 10 years of owning the policy.
You decide to convert $100,000 into a permanent life insurance policy. That means you now have:
- A $150,000 term life policy with 12 years left on it AND
- A $100,000 permanent life insurance policy for life
The premium amount for your term life policy drops to reflect the reduced coverage.
The rider also offers age conversion options. Age, not your health, is the key factor when converting to permanent life. Your age is used to determine the whole life policy price based on the option you select.
- Convert at your current age. Generally, the older you are, the more you will pay for permanent life insurance.
- Convert using the age when you bought your term policy. This requires paying a lump sum for the difference between what you paid for your term policy and what you would have paid for whole life at that age.
But going forward, the annual premiums for your permanent life insurance will be less.
Waiver of Premium Rider
This rider waives your life insurance premium if you become totally disabled and unable to work. Totally disabled means an injury or illness. But the definition could differ among life insurance companies.
During the time you are disabled, the life insurance company pays your premiums. Once you are able to return to work, you resume your premium payments.
You must apply for this rider and could be turned down depending on your health. The cost is around $5 a month. It could be much more depending on your age and health profile.
Critical Illness Rider
This rider provides a one-time cash benefit for medical expenses or hospice services if you are diagnosed with a critical illness.
Some examples of critical illness are:
- A stroke
- Heart attack
- Kidney failure
- A type of cancer with high survival rates
The cash benefit ranges from $10,000 to $1 million. It can be used for any purpose during the treatment of the illness. These include:
- Paying for treatments not covered by your health insurance
- Paying your bills or mortgage while you're recovering
- Replacing your spouse's income while caring for you
The cost for this rider is high, often making it cost-prohibitive for many seniors. It ranges from $180 to $550 a year and more, depending on the benefit amount.
Long-Term Care Rider
This rider pays for your daily living care if you become ill or have chosen hospice care. You choose the long-term care amount at the time you buy a whole life insurance policy.
The rider kicks in when you have a chronic illness that prevents you from taking care of yourself. It uses your policy's death benefit to pay for your long-term care. This includes:
- Private nurses
- Assisted living
- Nursing homes
- Home health care
- Adult day care
- Other services
Disability Income Rider
With this rider, you receive income if you become permanently disabled. Your life insurance premiums will also be waived. It can be added to a term life or permanent life policy.
You also have to wait six months before the benefits of the rider kick in. Additional documents are also required before receiving the rider's benefits, including:
- A letter from Social Security granting disability benefits
- A disability certification from your doctor
The rider states how much you will receive and for how long. Some companies base payments on length of time, while others on the type of disability.
For term life, it increases premium costs about 10% to 15%. For permanent life, it increases the premium about 3% to 6%.
With whole life insurance, the policy continues to build cash value and pay dividends even with the rider in force.
Accelerated Death Benefit Rider
This rider pays you a percentage of your policy's death benefit if you have a terminal illness. The funds can be used however you choose.
Payment may be taken in a lump sum or periodically. Proof of a terminal illness is required to receive the rider's benefits. A terminal illness is defined as having 12 to 24 months or less to live.
Accidental Death Benefit Rider
This rider provides an additional benefit if you die from an accident. Your beneficiary receives this added benefit, as well as the death benefit from your life insurance policy.
Accidental death is defined as a loss of life from something other than disease or old age. Typically, life insurance companies exclude acts of war, hazardous hobbies, and illegal activities from their definition of accidental death.
Eric has a $500,000 life insurance policy plus a $250,000 accidental death benefit rider. He dies in a boating accident.
His beneficiaries receive $750,000 ($500,000 life insurance benefit + $250,000 accidental death rider).
Your occupation, lifestyle (such as high-risk activities), and coverage amount determine the cost of this rider. On average, the cost is around $60 a year.
Most accidental death benefit riders end when the insured reaches age 70. Some also include dismemberment for loss of a limb or eyesight.
Deciding Which Type Is Right for You
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Your age, medical condition, and what you want life insurance for should be the deciding factors when choosing a type of life insurance. Here are some options based on age group.
Age 50 and Older
- Term life insurance if you have no coverage or need to increase your current coverage temporarily.
- Convert an existing term life policy to permanent life insurance to avoid high term insurance rates later in life.
Age 60 and Older
- Consider a guaranteed universal life insurance policy. This allows you to change your death benefits as needed.
- Convert an existing term life policy to a guaranteed permanent life insurance policy. This serves two purposes:
- You avoid paying higher term insurance rates later.
- The cash value in permanent life builds funds to pay cost of living expenses, unexpected medical bills, etc., or to gift to someone when you die.
- You avoid paying higher term insurance rates later.
Age 70 and Older
- If you're looking to cover funeral and burial expenses and pay off bills, consider final expense life insurance.
How Much Can I Expect to Pay for Life Insurance?
Risks increase as you get older. You have a higher risk of falling, getting certain medical conditions, and, yes, dying.
Age-related risks translate into higher costs for life insurance. How much higher? Take a look at these examples:
10-Year, $100,000 Term Life Insurance Monthly Premium Example by Age:
Age 55: $33.49
Age 65: $86.79
Age 75: $265.73
Monthly Premiums for $100,000 Guaranteed Universal Life Insurance if Purchased at:
Age 55: $142.58
Age 65: $239.42
Age 75: $432.75
Monthly Premiums for $50,000 in Final Expense Life Insurance if Purchased at:
Age 55: $147.42
Age 65: $235.81
Age 75: $493.94
How Can I Save on the Cost of Life Insurance?
Buying life insurance later in life means higher premiums. But you can keep your costs affordable by following these tips:
- Determine the amount and type of coverage you need. You don't want to pay for insurance you won't use. Evaluate what your needs are and buy a policy that meets them.
- Look into plans offered by senior groups, organizations, or the insurance company that insures your home or auto. Often, they have better group rates or offer discounts.
- Live a healthy lifestyle. You'll save money if you don't smoke and have good cholesterol and blood pressure readings.
- If you're in good health, opt for a policy that requires a medical exam. Medically underwritten life insurance typically costs less.
- Shop around. Rates vary among insurance companies.
- Be open to bundling different policies together to get the coverage you need.
For example, addressing short-term and long-term needs by purchasing a term life policy and a guaranteed universal life insurance policy.
- Pay your premiums annually to avoid monthly payment processing fees.
- Buy soon because the older you get, the more you'll pay.
How to Buy Senior Life Insurance
Not all life insurance companies have policies that cater to seniors. You'll need to shop online or contact a local life insurance agent in your area to find those that do.
Online
At an online life insurance marketplace, you can receive instant quotes for several types of policies. Simply enter some basic information about yourself, like your age, where you live, if you smoke, and your overall health status.
Click the quotes to learn more about an individual policy and the company providing it. If you like a specific policy, simply click to start the application process (more on that a bit later).
From an Agent
When buying a senior life insurance policy through a life insurance agent, you have two choices:
- Captive Agent: This person works for one life insurance company. As such, the agent sells only those products that life insurer offers.
- Independent Agent: This type of agent can sell life insurance products from numerous life insurers. They can provide you with multiple quotes, as well as a policy comparison. Other than an online marketplace, they are the best resource for finding companies with life insurance policies that cater to seniors.
How to Choose a Life Insurance Company
Before applying for a policy, research the company that will be insuring you. Be sure that carrier has the financial stability to pay out your death benefit when the time comes.
Some other things to consider:
- How many years the life insurance company has been in business
- The company's overall reputation
- The financial strength of the company
All this information is readily available online. Usually, the company's website posts its annual report, which will also contain information about its history and latest financial rating. Be wary of any company that doesn't.
You can also compare this information to independent sources, such as:
- Insurance Rating Agencies: This is the most important indicator of a life insurance company's financial strength and stability. The major insurance rating companies are: A.M. Best; Standard & Poor's; Moody's Investors Service; Fitch Ratings; and Weiss Ratings. Your choice of a life insurance company should have an "A" or "high" rating.
- The Better Business Bureau (BBB): Its website posts companies' BBB ratings based on the number of customer complaints and how they are resolved.
- Business Review Sites: These sites offer insight on other policyholders' experiences with the life insurer. They provide a good idea about the level of customer service the company provides.
The Application Process
Whether you apply online or through an agent, the life insurance application process is a lengthy one. Follow these easy steps to make it easier.
Step 1: Complete the Application
The application is divided into sections. The first asks for basic information, such as your name, contact information, your gender, your date of birth, etc.
The next section asks for the policy amount you're applying for, your beneficiary information, and payment information.
Another section asks about your occupation, income, lifestyle, and any criminal history.
A final section deals with medical questions, similar to the questionnaire you fill out when you see a new doctor. You'll be asked about your medical history, certain health conditions, the prescriptions you take, etc.
Step 2: Gather all the Documentation
Copies of certain documents have to be submitted with your completed life insurance application. They include:
- Proof of Identification: Acceptable items include a valid driver's license, birth certificate, passport, employment authorization card, or a permanent resident card.
- Proof of Income: The insurer accepts a pension statement, a tax return, pay stubs, a letter of employment, an earnings statement from the bank, or an unemployment benefits statement.
- Proof of Residency: You can submit a utility bill, mortgage bill, property tax statement, or a signed rent or lease receipt.
Step 3: The Phone Interview
Upon receipt of your application, most life insurance companies conduct a phone interview. They will review your application, clarify any information, and follow-up with any medical questions.
For example, if you answered "Yes" to having high blood pressure, you might be asked during the interview how long you've had it, what your last blood pressure reading was, if it's being controlled by diet or medication, etc.
Expect the phone interview to last between 15 and 20 minutes.
Step 4: The Initial Review
Once you complete the phone interview, the life insurance company conducts an initial review. This review determines whether your application will continue on through the process.
The review consists of a search on various databases. They are:
- The Medical Information Bureau (MIB) to check past medical records for any incorrect or omitted information on your application
- Various Prescription Databases to check your prescription drug history over the past 10 years
- The Motor Vehicle Records database to review your driving history over the years
Step 5: The Medical Exam
If your application passes the initial review, you will be contacted to schedule a medical exam. Some things to keep in mind about the exam:
- It's free.
- A medical professional arranged by the life insurance company will complete it, not your primary physician.
- It can be performed in your home or at your workplace.
- It will take about 20 minutes.
The medical professional will record your height and weight, take your blood pressure and pulse, and perform an EKG, if required by the insurer.
Additionally, you will have blood drawn and be asked to provide a urine sample.
To supplement the medical exam, the life insurance carrier will request your medical records from your primary physician, applicable specialists, and any hospitals where you were recently admitted.
No action is needed on your part. The insurance company will send an attending physician statement (APS) directly to the health professionals who manage your care. The purpose of the APS is to verify your health status and medical history.
Step 6: Application Review
The application, phone interview, and medical exam provide the life insurer with adequate information to assess its risk of insuring you.
Determining the risk is the job of the company's underwriting department. It reviews all the documentation and may request additional information.
Here are some of the factors that determine your risk factor:
- Your age
- Your current health and past medical history
- Prescriptions and other medications you take
- Pre-existing medical conditions
- Whether you use tobacco products
- Your lifestyle and any risky activities you may participate in, such as skydiving
- Whether you have any traffic offenses, like speeding, or motor vehicle convictions, such as drunk driving
- Your family history of diabetes, heart disease, stroke, or cancer
- The type of life insurance policy for which you are applying, as well as length of coverage and death benefit amount
All life insurance companies use a basic risk structure to classify the extent of a risk. The terms may differ, but generally the classifications are:
Preferred: This is the best risk rating your application can obtain. Generally, there is very little risk for the insurer providing coverage. With this risk classification, you pay the least amount of money for your life insurance policy.
Standard: This is a basic risk rating for applications. This means the life insurer is taking on some risk by providing you with life insurance. With this risk classification, you pay about 25% more than those in the preferred class.
Substandard: This is the lowest risk rating. The life insurance carrier is taking on a lot of risk to offer you coverage. Applications given this risk classification pay about 50% to 75% more than the standard rate for a life insurance policy.
Step 7: The Results
The entire application process takes between six to eight weeks. The time frame could be longer if there are delays. For example, the underwriting department might be waiting for an APS from one of your doctors.
The insurance company informs you in writing whether your application is approved or denied. If it's denied, the letter will state the reason why. If you don't agree with the reason(s), you can appeal it. The appeal process will be outlined in the denial letter.
If your application is approved, the insurer will make you an offer. This offer may differ from the amount you received in your original quote.
Step 8: Making Your Decision
With the offer in hand, you have four options to consider:
- Refuse the Offer
If the policy price is too high, you can refuse the offer. You can either inquire about another type of policy or look for life insurance elsewhere. - Ask for a Reconsideration
You can ask the insurer to reconsider your rate. This option is often used if you had a recent change in your health status. For example, perhaps you recently completed a smoking cessation program and no longer use tobacco. - Modify the Offer
You can ask the life insurance carrier to modify the policy to fit your budget. For instance, you could lower your death benefit amount or the duration of coverage. - Accept the Offer
If you decide to accept the life insurance company's offer, be sure to follow the acceptance procedures carefully.
Usually, the approval notification will include a document for you to sign and return. This indicates you accept the policy and its coverages, terms, and price.
You also need to submit your first payment and select your payment frequency. Options usually include monthly, quarterly, semiannually, or annually.
Once the company receives this information, your policy will be issued. Be sure to review it carefully. If there is something you don't agree with, contact the insurer within 30 days.
Bottom Line
Seniors are at an opportune time to take inventory of their life. It's also a time to reflect on the debt they will leave behind to their loved ones.
Life insurance addresses gaps where funds are needed. It answers the need for:
- Supplementary income
- Unexpected situations, such as a serious medical diagnosis
- Covering funeral and burial expenses
- Paying off debts
- Providing financial support to loved ones when you're gone
Paying more for life insurance at a later age is unavoidable. But what seniors can do is buy life insurance that is customized to their needs.
Determine what you want life insurance for, shop around, and ask questions to ensure you're buying a life insurance policy that's an exact fit for you now, later in life, and when you're gone.
Write to Maryellen Cicione at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.
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