We all know the importance of life insurance, but dread the exercise of going through multifarious options and complicated conditions to make the right decision about which life insurance policy to purchase.
For senior citizens, buying life insurance can get even more confusing and expensive because our risk of mortality increases as we age and a higher payout is more likely.
In this guide, let us try to demystify the topic of life insurance for senior citizens and evaluate various options available to them.
Mistakes to Avoid when Buying Life Insurance as a Senior
If you have reached the age of 60, and do not have life insurance, you should urgently begin your search for a suitable policy. It is natural to have a concern that you won’t qualify due to your age or medical condition, but do not count yourself out. Several prudent life insurance options are likely to be available for seniors like you. The key is to avoid making costly mistakes during the buying process.
Mistake # 1: Buying the Wrong Kind of Policy
Life insurance, particularly for senior citizens, must be viewed as a one-size-fits-all plan. The coverage should match with the senior’s unique situation and their personal profile.
For instance, “life insurance without a medical exam” sounds tempting, but it is not for everyone because the premiums are higher. All seniors need to consider their age, health condition, debt status, and how many dependents they have, if any, while choosing a life insurance policy.
Mistake # 2: Focusing on the Premium Cost Alone
While premium cost is a vital factor, it may not be the most important one in all cases. Various life insurance policies come with an option to add riders (such as “critical illness”) to the policy, enabling you to increase coverage benefits for a reduced rate.
There is also the matter of a rate lock. Policies offering very low premiums may sometimes have no rate lock, which means the premiums will go up every few years after you buy. The policy could eventually become unaffordable, forcing you to lapse your coverage.
Mistake # 3: Selecting the Wrong Agent
As a senior citizen, you need the guidance and support of an agent who is dependable, knowledgeable, and caring. Choose a reputable professional who is already representing seniors like you for their insurance needs, and has a reputation of being fair and cordial.
You should also determine whether you are comfortable working with a captive life insurance agent who represents only one insurance company (which should have high financial ratings) and offers dedicated customer service, or an independent agent who works with multiple insurers to get you the best deal. You could also work with an insurance broker, who will have a broker’s license, and is likely to offer the wide range of life insurance products.
How Seniors can Avoid Scams when Buying Life Insurance
Over the years, life insurance for senior citizens has acquired a somewhat bad reputation because of the relatively higher incidence of scams. Seniors are often easier targets for scammers because they may be more vulnerable due to health or other limitations. These scammers typically masquerade as life insurance agents, aiming to take advantage of the seniors’ trust. Here are a few things you can do to protect yourself against senior life insurance scams:
Conduct Your Online Research about the Insurance Provider
A common modus operandi of scammers is to create a fictitious insurance company, which will suddenly and mysteriously go off your radar once they have taken your money.
To avoid this situation, do your research on the insurance provider that the agent claims to represent. Check out the company’s website, its presence on a Google search, and its inclusion in salient third party life insurance websites.
Verify the Credentials of the Agent
Call the insurance company to verify if the agent has been authorized by them to represent the company. They may also be listed on the official website of the insurance provider. Online reviews about agents are sometimes available on third party sites. A legitimate agent’s email address may have been provided by the insurance company (not the general Gmail or yahoo address). Send a mail on that address to see if you receive a response.
Be Wary about Rate and Plan Changes
Before you sign any paper, check with the insurance provider whether they ever raise premiums over the course of the life insurance policy. Unless you are fully convinced by their response, do not move forward. Similarly, check whether the insurance provider has reserved the option to change the plan details years after the life insurance policy was signed.
If they have placed age barriers or other restrictions on coverage without clearly communicating about them to you, it is judicious to become more cautious and do further due diligence before moving forward.
Types of Life Insurance Policies that are Good for Seniors
Seniors have access to many of the life insurance plans available to younger people – yes this is true! That said, some types of life insurance policies may be better for you. Take a look at these options:
Term Life Insurance
Term life insurance is usually considered the best option for seniors. As this is pure insurance, it offers more coverage at a lower rate. Even if you may be approaching 65 (upper age limit for applying for term insurance at many providers), you could get a policy for under $100 if you are in decent health.
The term life insurance option can help you insure for specific reasons, including paying off debts, paying final expenses, or providing for your spouse and children for a specific time period. If you think you may require life insurance coverage only for 10 to 20 years, a term policy could be the right choice for you.
There are different types of term life insurance policies. Here are the ones which could suit you the most:
Guaranteed Level Term
This plan has a level premium amount and a level benefit amount through its full term (typically five to 20 years). A Guaranteed Level Term allows you secure steady monthly payments for a defined payout, in case you pass away during the term.
Annual Renewable Term
It is a short-term life insurance policy that is renewable every year for a specified period. The advantage is that, the premiums start out low. But with every renewal, the premiums will rise. It could be a good option when you need insurance for a short period of time, such as until you retire in three to four years.
This insurance offers a death benefit that declines in value every year. The premium starts out lower due to the decreasing payout. This could be a sagacious option if you are insuring against your debt.
Things to Remember for Term Life Insurance
Term life insurance policy does not offer any guarantees of renewal. Even if you choose an annual renewable term policy, it only guarantees that you can renew the policy for a specified number of years.
It is important to remember that many insurance providers will not let you buy a new policy after you turn 65 years of age. Therefore, you should carefully evaluate up front how long you might need your term to last. A longer term will have a higher premium. However, it is better to pay a higher premium than to be in a situation where you are without coverage when you still need it.
Permanent Life Insurance
Permanent life insurance is another important plan to consider for seniors. Unlike term life insurance, this policy covers you for your whole life. However, this is not just pure insurance, and includes a savings or investment component. This plan is often called “whole life insurance,” but that is actually a type of permanent life insurance.
Compared to term life insurance, permanent life insurance is more expensive. But even with higher premiums, this policy could be the right solution depending on your situation. For example, if you want to provide for a spouse or child with a permanent disability, who is not expected to become financially independent.
That means you will never be in a situation where you do not require some life insurance coverage. That is an example where permanent life insurance could be an astute option for you. Furthermore, these policies are sometimes part of a larger estate plan.
Different types of permanent life insurance policies include:
Whole Life Insurance
This policy comes along with a death benefit and a cash value. A part of your premium goes towards the investing portion. Your insurance company will pay dividends on this portion. Some whole life insurance policies offer a minimum guaranteed cash value, while in some others you are allowed to withdraw money from the cash value.
This policy is similar to whole life insurance, but usually involves a more aggressive investment strategy.
In a variable life policy, the number of investment options is higher. Your cash value will change according to the underlying investments.
This policy may be a fine choice if both you and your spouse are providing for a disabled child. Survivorship life will insure your lives together and will pay out after you both pass away. It is more cost-effective than two individual whole life policies, but quite similar in other respects.
Final Expense Life Insurance
Burial insurance, or final expense insurance, is designed to cover the expenses when the policyholder passes away. The policy could help pay for burial/funeral costs and any outstanding medical and other bills. To qualify for this policy, you may be asked slightly more detailed health-related questions.
If you have serious health issues or a pre-existing medical condition, qualifying for a guaranteed issue life insurance policy may be easier.
Guaranteed Issue Life Insurance
For seniors who wouldn’t otherwise qualify for term life insurance, a guaranteed issue life insurance is often described as the “last resort”. However, for someone who has serious health issues but requires some form of life insurance, a guaranteed issue life insurance is an option worth considering. You will not be required to have a medical exam, and if you are able to afford the premiums, your application will be accepted by the insurance company.
The downside of this insurance policy is that it is expensive. In terms of per dollar coverage, it is perhaps the costliest life insurance product in the market. Moreover, you do not get much for your premium, and the death benefits in guaranteed issue life insurance are typically small.
How much Coverage Should You Look for?
Life insurance needs often changes over time. As people age, they usually require less insurance because they may have fewer financial obligations. The mortgage may be paid off or close to it, the children might be independent, and the retirement savings could have grown. If this is your situation, you probably require less insurance than you did some years ago.
You can save money by simply not overbuying. But at the same time, you need to think about the risks and the extent of your exposure and make sure you are adequately covered. You may not require a lot of money to live in your senior years, but your healthcare expenses are likely to increase. You should also account for the future increase in inflation while making your calculations.
How to Shop for Life Insurance for Seniors?
Shopping for life insurance as a senior can be challenging because of a wide range of options and a large number of insurance providers offering life insurance policies for older adults. Here’s what you should look for in a company and policy:
Strong Financial Rating
To ensure that the insurance company you choose is solid financially, look for their financial ratings with reputed third party raters such as AM Best or Standard and Poor’s.
Easy Application Process
You should ideally be able to begin the application process online, even if you finally have to speak to a representative to conclude the process.
Customizable Policy Options
Choose an insurance company that will allow you to customize your life insurance policy to some extent according to your needs.
It is vital to understand the policy terms before you buy. If you are selecting a policy that is more complex, a representative of the insurance company should be able to explain to you everything clearly and help you make a poignant decision.
Importance of Using a Proven Broker to Shop and Compare Rates
An accomplished broker will be solely focused on your unique requirements because they have a reputation at stake. A broker or agent with less at stake may try to sell you a more expensive life insurance policy with unnecessary bells and whistles because it will obtain for them a higher commission.
An honest broker will help you with comparison shopping, zeroing in on the most competitive options for the coverage you need. They may be able to advise you to customize or bundle your policies in a way that maximizes your benefit. Brokers work with multiple insurance companies, and have deeper insights into the offerings and benefits of different providers. This puts them in a strong position to give you astute advice for your life insurance policy.
Cheapest Life Insurance for Seniors: Is it Affordable?
The best cheap life insurance may not necessarily be the cheapest life insurance. Although low premiums are important, it is equally vital to choose a life insurance policy that provides ample protection.
Look for the insurance provider’s financial ratings, which are an indicator of their ability to pay out on your claim, should the need arise. Set your bar high when you are making a choice.
While a term life insurance is always “best cheap” policy for seniors, it should preferably have an option to convert the term to a whole life or permanent policy. If life takes an unexpected turn, and you are diagnosed with a serious illness, your policy renewal may become difficult. So carefully consider the conversion option while choosing a policy.
Choose a policy that offers guaranteed renewability, which means during that set period you cannot be refused the right to buy additional coverage.
Life insurance in its basic form provides a death benefit to beneficiaries. However, if you choose the right type of add-ons or riders, your policy could help to protect you in your lifetime as well, offering financial support in case of long term care needs, terminal illness, disability, and so on.
The older you get, the more expensive your life coverage is going to be. Therefore, if you are considering life insurance as a senior, the sooner you get it the better. But at the same time, when it comes to life insurance, it is never too late. Even at 80, you can expect to receive life insurance coverage without a medical exam. Choose a reliable life insurance broker who will help you find the right life insurance policy at the right price.
Complete Guide to Life Insurance For Seniors by Jonathan Holloway