Re-evaluating life insurance in your golden years
As you approach or pass age 65, your financial landscape likely looks very different than it did in your younger years. Your children may be grown, your mortgage might be paid off, and your primary concern has shifted from income replacement to managing your estate and planning for final expenses. However, this doesn't mean life insurance is obsolete; in fact, for many, it remains a critical financial tool.
Factors to consider when buying life insurance after 65
Navigating the world of insurance in retirement requires a careful assessment of your needs. Several key factors influence whether a new policy or continuing an existing one makes sense.
- Existing financial obligations: If you still have outstanding debts, such as a mortgage, car loan, or large credit card balances, a life insurance payout can prevent these burdens from falling on your surviving spouse or children.
- Dependents: While your children may be independent, you might still financially support a spouse, grandchild, or other family member. A policy can ensure their continued financial stability.
- Estate planning and legacy: For those with a high net worth, a life insurance policy can be used to cover estate taxes, preserving other assets like real estate or investments for your heirs. It is also an effective way to leave a tax-free legacy for your family or a favorite charity.
- Final expenses: The cost of funerals, burials, and other end-of-life expenses can be significant. Final expense insurance, a type of permanent life insurance, is specifically designed to cover these costs, protecting loved ones from unexpected financial strain.
- Health and insurability: Your health plays a major role in determining both eligibility and premium costs. While rates are higher with age, many options, including simplified or guaranteed issue policies, require minimal or no medical exams, making coverage accessible even with pre-existing conditions.
Types of life insurance for seniors
Not all life insurance policies are created equal, and understanding the different types is key to making the right choice. For seniors, the options typically narrow to permanent policies or shorter-term options.
Permanent life insurance (Whole or Universal)
Permanent life insurance provides lifelong coverage, as long as premiums are paid. These policies also have a cash value component that grows over time on a tax-deferred basis. This cash value can be accessed during your lifetime via withdrawals or loans, providing a valuable financial resource. Whole life policies offer a fixed premium and guaranteed cash value growth, while universal life policies provide more flexibility in premium payments and death benefits.
Term life insurance
Term life insurance covers you for a specific period, such as 10 or 20 years. For seniors, shorter-term options are more common due to age. It is typically the most affordable type of life insurance. A term policy could be suitable if you have specific, time-sensitive financial needs, such as a remaining mortgage balance that will be paid off within the term. However, if you outlive the policy term, the coverage ends, and you will not receive a payout.
Final expense insurance
Also known as burial insurance, final expense insurance is a small whole life policy designed to cover end-of-life costs. It typically has a smaller death benefit ($5,000–$25,000), making premiums more affordable. These policies often feature guaranteed acceptance or require very simple health questionnaires, ideal for those with health issues who may not qualify for other coverage. The benefit amount is generally sufficient to cover funeral arrangements and any minor outstanding debts.
Comparing life insurance options for seniors
| Feature | Permanent Life Insurance | Final Expense Insurance | Term Life Insurance |
|---|---|---|---|
| Coverage Duration | Lifelong | Lifelong | Fixed term (e.g., 10-20 years) |
| Premium Cost | Highest | Moderate (lower coverage) | Lowest |
| Cash Value | Yes, builds over time | Yes, builds slowly | No |
| Medical Exam | Often required | Often simplified or not needed | Usually required for best rates |
| Death Benefit | Higher coverage amounts | Smaller coverage amounts | High coverage amounts |
| Best For | Legacy, estate planning | Funeral costs, small debts | Time-sensitive obligations |
Considering alternatives to life insurance
While life insurance is a powerful tool, it's not the only way to plan for the future. Depending on your financial health, other strategies might be more appropriate. These include:
- Self-funding: If you have substantial savings and investments, you may choose to self-fund your final expenses or leave a legacy by directing assets through your will or trust. A dedicated high-yield savings account or a carefully managed investment portfolio can serve this purpose.
- Annuities: An annuity can provide a guaranteed stream of income during your retirement years. Some annuities also include a death benefit, ensuring that any remaining principal passes to your beneficiaries.
- Asset-based long-term care: Some policies combine life insurance with long-term care coverage. This allows you to use the policy's benefits for long-term care needs, or, if not used, have the death benefit paid to your beneficiaries. This approach can be particularly beneficial as healthcare costs rise significantly in later life, as research has shown households over 65 incur an average of $310,000 in healthcare spending over the remainder of their lives.
Making the right choice for your situation
Ultimately, the decision of whether is life insurance worth it after 65 hinges on a personal assessment of your financial goals, health, and what you want to provide for your loved ones. The right path for you will be a thoughtful combination of considering your dependents' needs, potential end-of-life costs, and overall estate plan. Talking to a qualified financial advisor can provide valuable, personalized guidance tailored to your specific circumstances.
