AARP Life Insurance Review
B.A. Risk Management
Life Insurance Agent
AM Best Rating
Term, Whole, Universal
Buying life insurance to cover your post-retirement financial needs can be a challenging task. Life insurance companies usually reserve their best rates for the young and healthy, which means people over the age of 50 do not have as many options.
Still, you can find a number of policies that are specifically designed to meet the life insurance needs of seniors. In this review, we are going to take a detailed look at AARP, a company which has made a name for itself by offering policies for people aged 50 and above.
In this review, we are going to discuss AARP, its financial position, the policies it offers, and the advantages and disadvantages of choosing the company as your insurer.
Table of Contents
Our Take - Is AARP the Right Choice for You?
If you are older and have preexisting conditions, you are a good candidate for AARP’s policies. Otherwise, you are better off choosing a company that can offer a larger death benefit. If you are in the market for a policy to cover funeral expenses, you cannot go wrong with any of AARP’s policies. Still, there are other highly rated companies that offer cheaper life insurance. So, you should compare the options available and choose a policy that is ideally suited for your needs.
Compare AARP to Other Companies
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The American Association of Retired Persons (AARP) was founded in 1958. The founder – Dr. Ethel Percy Andrus – established it in an effort to provide a wide range of benefits – including insurance – to retired people.
Interestingly, AARP is not an insurance company, nor does it provide any policies on its own. It has set up an insurance program with New York Life, which is one of the oldest and most well-known names in the industry. So, all the policies offered by AARP are actually issued by New York Life.
AARP currently has nearly two million members who have enrolled themselves in the AARP – New York Life insurance program.
AARP Financial Ratings
AARP, as mentioned above, is not an insurance provider. New York Life is the company which issues the policies and deals with the settlement claims. So, let us take a look at the financial ratings of New York Life.
- A.M. Best: A++
- Standard & Poor’s: AA+
- Moody’s: Aaa
- Fitch: AAA
As you can see, all the ratings are top notch, which is indicative of New York Life’s financial strength and stability. Moreover, the company has been in the insurance industry for more than 150 years. It is a Fortune 500 company and the total value of assets under its management is nearly $600 billion(1).
It would be an understatement to say that AARP has chosen the right company to issue its insurance policies.
Life Insurance Offered by AARP
AARP offers four different life insurance policies – a term policy, a whole life policy, a guaranteed acceptance policy, as well as a whole life policy designed specifically for young children.
The first thing you need to know about AARP’s insurance policies is that they are meant only for AARP members. A non-member cannot apply for these policies.
However, there are no entry barriers that can prevent you from becoming a member of the organization. So, you can easily become one by paying the yearly membership fee of $16. Once you do, you can apply for any policy you want.
Now, let us take a detailed look at the policies offered by the company.
AARP Level Benefit Term Policy
This is a term life policy in which the death benefit stays the same throughout the policy’s duration, while the premiums start low and increase every time you move to a different age bracket.
It is an annual renewable policy, which means it is designed to expire at the end of a 12-month period, at which point it needs to be renewed once again. You need to be between the ages of 50 to 74 in order to apply for the policy. It is designed to protect you until the age of 80.
If, at the age of 80, you still need insurance, you can turn your term policy into a permanent policy, which means you are covered for life.
The initial premium for your policy is based on the age bracket you fall into at the time. From then on, the premiums increase every time you enter a new age bracket.
For example, if you are a 60-year old man who wants a $100,000 policy, you are likely to pay $109 per month at the start. When you turn 65, you enter a new age bracket, which means your premium will increase to $144. Similarly, when you turn 70, you enter a different age bracket, which means your premium will increase to $208.
The most important feature of AARP’s term life policy is that there is absolutely no requirement for a medical exam. You just need to answer three questions, based on which the underwriter will determine your insurability and premium rate.
There is no waiting period either, which means your policy goes into effect right from day one.
The interesting thing about AARP term policy is that it is not as expensive as most other no-exam policies offered by its competitors. While the premiums are higher than what you might pay for a regular term policy with medical exams, they are not prohibitively expensive, which is the case with some companies.
For example, if you are a 60-year old man who smokes regularly, a 15-year, $100,000 term policy from AARP is likely to cost you $226 a month. The same policy from MetLife is likely to cost you $339 a month. And the same policy from New York Life is likely to cost you $487 a month.
AARP Whole Life Policy
AARP’s whole life policy, like all permanent life policies, is set to cover you throughout your life. Apart from the fact that you need to be in the 50 – 80 age group, there are no other eligibility criteria for this policy.
Your policy’s premium is determined at the very start of the coverage period. Once it is set, it does not increase at any point, irrespective of your age or your health condition. It remains unchanged until your death.
The coverage amount starts at $5,000 and ends at $50,000. While it is not enough to secure your mortgage or other such major financial commitments, it is certainly enough to cover your funeral expenses and to pay off a few minor debts, which is the primary reason people buy such policies in the first place.
There is a cash value component, which grows at a steady rate all through the policy’s term. You are allowed to borrow against it in case of a medical emergency or to meet any other expense.
One of the most unique aspects of AARP’s whole life policy is that the premiums end when you turn 95. The coverage, however, continues until your death. Not many people live past the age of 95, but it is still nice to have such an option, in case your lifespan extends beyond your expectations.
AARP offers two riders along with its whole life policy, both of which are optional.
Accelerated Death Benefit – In case you develop a terminal illness and only have 12 months to live, the company will pay you 50% of your policy’s death benefit to help you cope with the treatment costs.
Waiver of Premium – In the event that you are required to stay at a long-term care facility due to an illness or injury, the company will waive off your premium payments – as long as your stay at the facility lasts at least six months.
The waiver period continues until you are discharged from the facility or until you reach the age of 80, whichever comes sooner.
AARP Guaranteed Acceptance Whole Life Policy
This is a policy whose target customer base is primarily comprised of high risk people with pre-existing conditions. It is, as the name indicates, a guaranteed acceptance policy, which means you cannot be turned down regardless of your age or health condition.
Just like all other policies from AARP, this one too does not require you to undergo medical exams. In fact, you do not even have to answer a questionnaire. All you need to do is apply for the policy and you will be accepted, as long as you are between the ages of 50 and 80.
The death benefit ranges from $2,500 to $25,000. The policy has a two-year waiting period, only after which your beneficiaries become eligible to receive the full death benefit payout. If you happen to die in the first two years, one of two things can happen.
- If you die in an accident, your designated beneficiaries will be paid the entire death benefit amount.
- If you die of natural causes, your beneficiaries will be paid 125% of the premiums paid until that point.
This is a common feature in guaranteed acceptance policies. It is used as an entry barrier to prevent terminally ill patients from applying for the policy, only to die a few months later, thereby ensuring their family a guaranteed payout.
Once the restriction period is over, your dependents stand to receive the entire death benefit payout any time you die thereafter.
As is the case with the whole life policy, AARP’s guaranteed acceptance policy too has a provision wherein the policyholder can stop making premium payments when they turn 95, but still continue to be covered until their death.
The cash value component of the policy continues to grow in value as long as the policy is in effect. You have the option of borrowing against it any time you want for any purpose.
The policy comes with an accelerated death benefit rider, by choosing which you can receive 50% of your policy’s death benefit in case you are diagnosed with a terminal illness and left only with 12 months to live.
AARP Young Start Plan
This is a policy which you can buy for your children or grandchildren who are less than the age of 18. There are no eligibility criteria or medical exams. You only need to answer three questions to get accepted.
The premium is determined when the coverage starts and remains the same until the policy expires. You have three options in terms of the coverage offered – $10,000, $15,000, or $20,000.
You will remain the beneficiary of the policy until the policyholder (your child or grandchild) turns 21, at which point they can either choose to keep you as the beneficiary or designate a beneficiary of their choice.
If the child passes away while you are the beneficiary, you will receive the death benefit payout. If you pass away before the child turns 21, the child is not required to pay premiums until he or she reaches the age of 21. So, even in your absence, the child continues to be covered until they are mature enough to make decisions on their own.
This policy too includes a small cash value component, which your child or grandchild can access after they become the policy owner.
Advantages and Disadvantages of Choosing AARP as Your Insurance Provider
- The policies are offered by New York Life, which is one of the most trusted names in the industry.
- Your age, family history, or preexisting conditions are not at all a concern with the guaranteed acceptance policy. Even the other two policies have a very high acceptance rate, which means you are most likely to be qualified, even if you have been rejected by other insurance companies before.
- The death benefit is sufficient to pay off minor debts, settle outstanding bills, and to take care of your final expenses. Except the term policy, all the other policies have a built-in cash value component, which provides you with living benefits.
- The premiums stop once you reach the age of 95, but the coverage remains in place until your death.
- You need to be an AARP member in order to apply for the policies. You will need to pay an annual fee of $16 to become one.
- The term policy is expensive, since the premiums keep increasing in five year increments, every time you enter a new age bracket.
- Limited death benefit means these policies can only be used for your funeral expenses.
- NYL Report to Policy Owners - Available from: https://www.newyorklife.com/assets/docs/pdfs/financial-info/2018/report-to-policy-owners.pdf