So you're thinking about getting life insurance as a senior citizen or let's just say someone past middle-age. Not a bad idea given you've lived this long without coverage. Think about it this way. Every year you've lived without life insurance is savings or money spent on life or on your investments.
The ideal life insurance scenario is if you live your whole life without paying life insurance premiums, and then get a nice life insurance policy the week before you die.
Unfortunately, none of us can predict our mortality with that amount of accuracy. But we do know that the median life expectancy is currently around 78 for men and 80 for women. The median life expectancy is also growing. So we can estimate within a +/- 20-year accuracy on when we will die. Estimating a +/- 10-year accuracy is also possible. But any shorter a time frame and it's hard to predict.
Let's go through some good reasons to purchase life insurance as a senior citizen or past middle-aged adult.
First, let me share the easiest way I think you can get affordable life insurance for your age. Then, will look into the different types of life insurance as well as the positives and negatives of getting life insurance as a senior citizen.
Easiest Way To Get Life Insurance For Senior Citizens
By far, the easiest way to get life insurance is to shop online through PolicyGenius. PolicyGenius is an insurance platform that was specifically built to find the best life insurance quotes from the most reputable life insurance companies so you can compare the policies all in one place.
In the old days, you had to apply for a policy one by one. The process was cumbersome and opaque. With PolicyGenius, you can see all the quotes with just one application and then proceed to choose the policy that best suits your needs.
Always get multiple quotes so you know that you're getting a good life insurance deal.
Top Life Insurance Companies For Seniors
Once you've applied on PolicyGenius, you will see various top life insurance companies provide quotes. In general, it's good to stick with the largest life insurance companies given they have the longest history with the largest balance sheets. After all, you want your life insurance company to outlast you and promise to pay your beneficiaries your death benefit.
Here are some of my favorite life insurance companies today:
State Farm is the largest auto insurance company with also a tremendous life insurance business. Start Farm offers term life insurance policies guaranteed to be renewable up to age 95, which is a huge benefit if you need longer-than-average coverage. The policies are also convertible to permanent policies.
AIG Life has an A rating from A.M. Best. It is one of the largest life insurance companies in the world with the longest history.
AIG’s Select-a-Term policy option gives you the ability to customize your coverage term to exactly suit your needs. There are 18 different terms available, which is nice if you have a specific coverage timeline in mind.
North American Company
North American Company also is rated A+ by A.M. Best. It offers level premium policies that are convertible to permanent life insurance through age 74. Having the option to covert a cheaper term life insurance policy so late is HUGE because it allows the policy holder a lot of optionality.
Imagine if you get a 10-year term life insurance policy at 38 for $50/month when you had no children and were healthy. Then in year 8, you had twins and developed some sort of chronic illness. When you're up for renewal, your term life insurance policy premium could increase by 10X based on your new medical records. If you can convert, you don't need a medical exam and get to convert based off your health when you first got the policy.
North American Company allows a rider to extend the death benefit beyond the initial term, up to age 120.
Mutual of Omaha
These life insurance policies are underwritten by United of Omaha Life Insurance Company, which is rated A+ by A.M. Best. Your term can last up to age 80, and you can take out a policy all the way up to age 74.
You can get smaller life insurance benefits through United of Omaha Life by simply applying online without a medical exam. The medical exam is one of the biggest frictions that prevents people from getting life insurance. Getting a $50,000 – $100,000 policy to cover final burial expenses could be very helpful.
The United Services Automobile Association (USAA) is a San Antonio-based Fortune 500 diversified financial services group. It provides insurance to people and families who serve, or served, in the United States Armed Forces. At the end of 2019, there were about 13 million members.
USAA was founded in 1922 in San Antonio by a group of 25 U.S. Army officers as a mechanism for mutual self-insurance when they were unable to secure auto insurance because of the perception that they, as military officers, were a high-risk group. USAA has since expanded to offer banking and insurance services to past and present members of the Armed Forces, officers and enlisted, and their families. The company ranked No. 100 in the 2019 Fortune 500 list of the largest United States corporations by total revenue
I’ve been a USAA member for over 25 years and I enjoy their customer service. Their life insurance agents are salaried agents and do not work on commission. My father served in Vietnam and my grandfather served in World War II in Honolulu, Hawaii.
Finally, there's Haven Life, created by MassMutual, which has a ton of products and an A++ A.M Best rating. Haven Life was created with technology and efficiency in mind. You can complete the majority of the paperwork online.
Haven Life allows you to submit an application until the day before your 65th birthday. But you get an extra four months to actually complete the underwriting process to purchase the insurance.
65 Is An Important Age For Life Insurance
In the 60 to 65 age bracket, you can still apply for a term life insurance policy with most insurance companies. However, once you hit your 65th birthday, fewer life insurance companies will insure you.
Only Mutual of Omaha offers insurance applications up to age 74. The death benefits are small, such as $25,000 – $100,000, but it's better than nothing if you want to cover your liabilities and leave money behind to your loved ones.
If you have a term life insurance policy, definitely consider converting it to a permanent life insurance policy so you can have life insurance coverage for life. I have a $1 million, 10-year term life insurance policy that is expiring in 2023, which I plan to convert at least $500,000 to a universal life insurance policy, a type of permanent life policy.
The reason why I want to convert is so that I can have life insurance for life and earn some money in a tax deferred manner by building up a cash value over time.
Once you hit 70, the vast majority of life insurance companies will not insure you given the median life expectancy is between 78-80. At the end of the day, a life insurance company is a business that wants to make money.
Further, by age 70, hopefully you have already paid off all your debts, made and saved a decent amount of money, and have independent children.
Questions Seniors Should Ask Before Getting Life Insurance
Life is complicated. It seldom turns out exactly the way we hope. If you're looking for life insurance over the age of 50 or 60, chances are, there's a reason. Maybe it's declining health, a surprise dependent, or declining wealth in a bear market that has got you concerned.
Here are some questions I'd ask yourself before getting life insurance:
- Do I still have dependents? We're having children at older ages. For example, I had my first at 39 and my second at 42. By the time I'm 60, they still might not be financially independent because of college or maybe due to a difficult time finding work. If you have kids in your late 30s and beyond, you should definitely consider getting life insurance. And if you planned to have kids at a later age, definitely try and get life insurance younger to lock in lower rates.
- Do I have a disabled loved one? If you have a disabled partner, spouse, boyfriend, girlfriend, son, or daughter, life insurance is a good idea. I have a neighbor whose daughter has severe cerebral palsy. She cannot walk or speak. The two parents are her primary caretakers plus another professional. In this case, they need life insurance. Otherwise, their daughter will go homeless.
- Do I still have a lot of long-term debt?. Hopefully, you have enough assets to cover your liabilities in case of death, however, with an increasingly higher income required to live a middle class lifestyle, having lots of debt near traditional retirement age of 60-65 is becoming more common. For example, at 42, I still have $900,000 in mortgage debt because housing is so expensive in San Francisco. Therefore, I want to have some life insurance to cover my liabilities, despite having lots more assets.
- Do I have someone to pay my final expenses? If you want to relieve the burden of funeral expenses, which can cost up to $25,000, then having a small life insurance policy is a good idea.
- Will my estate's value surpass the estate tax exemption amount? If you are fortunate to have a large estate, then you may want to put your life insurance in an irrevocable living trust to manage your estate tax liability. Talk to an estate planning lawyer for more details as estate planning can get very confusing. Every dollar over the estate tax limit for the year you die will be taxed at around 40%. Therefore, you want to spend more of your money while living, give it away while living, or try and shelter some of it from the tax man.
- How much do I value peace of mind? Let's say you've lived a long and interesting life so far. The more difficult your life, perhaps the more you want life insurance to have peace of mind for yourself and for your loved ones. If the cost is reasonable, then why not. Peace of mind is priceless. During the coronavirus-induced bear market, having no mortgage provided tremendous peace of mind for me and my family.
Life Insurance Options For Senior Citizens
There are two main type of life insurance policies to consider. One is term life, the cheaper option without permanence or a cash benefit. The other one is a permanent life insurance policy with a cash benefit.
Term Life Insurance Option
Term life insurance is like rent. You pay a premium for a duration of time to cover your life and when that duration is over, your term life insurance option is over unless you want to renew.
Term life insurance is way cheaper than permanent life insurance because you're not paying to build your cash value as well.
With term life, you need to estimate the duration you want the life insurance policy. Maybe it's until you think you will die. Or maybe it is until you think you will have all your liabilities paid off. It's an individual decision that only you can decide.
There are three main types of term life insurance policies:
- Guaranteed Level Term: The premium stays the same throughout the entire term. This is the most common type of life insurance policy because it is the easiest to understand and plan for.
- Annual Renewable Term: This short-term life insurance policy can be renewed every year for a certain amount of time. The benefit of this type of term life insurance is that premiums start out comparatively low. However, your premium will increase each time you renew. This is a good option if you're several years away from getting your full pension and just want to insure you are good until then.
- Decreasing Term: Your death benefit, not premium, decreases each year. This type of insurance is a logical choice for many because we tend to accumulate more wealth and have less debt over time. The premium is often level throughout the plan, but it starts out lower because of the decreasing payout. More people should consider a decreasing term life insurance policy to save money and match their needs. However, if you foresee yourself getting into more debt as you age, this type is not for you.
The Importance Of Forecasting Your Life Insurance Needs
The biggest risk with term life insurance is that if you inaccurately forecast how much or how long you need life insurance, when you're up for renewal, you could be in for a surprise.
For example, 10 years later, you may want to renew your policy because you adopted a new kid or bought a new house. But in those 10 years, your cholesterol went up and you gained 30 pounds. Because you are also older, you premium might got way up.
When I went to renew my policy at 40, I was told I had to pay 10X more because I went to see a sleep doctor for my snoring. The overzealous doctors said I had sleep apnea and needed to use a CPAP machine. For the best life insurance rate, get a life insurance policy before seeing a doctor for non-life threatening health issues.
Besides your premium going up on renewal, you might not be able to renew your policy at all. Remember, most companies won't let you purchase a new policy after age 65. Make sure you decide before you turn 65.
Permanent Life Insurance Option
Unlike term life insurance, permanent life insurance covers the policyholder for your entire life. Not only does permanent life insurance cover you for your entire life, permanent life also has a cash value option that allows the policy holder to build wealth over time.
Because of the cash value, premiums for permanent life insurance is much higher. Think about the permanent life premium as a mortgage payment that pays down principal (cash value) and interest (death benefit).
If you have a disabled spouse or child, having a permanent life insurance policy makes sense. If you enjoy another means of building wealth in a tax-efficient manner, permanent life also makes sense. The cash value grows tax-deferred. Permanent life insurance is also good for estate planning if you are fortunate enough to have an estate that is over or will be over the estate tax exemption amount.
Permanent life is also called whole life insurance. Here are several types of permanent/whole life insurance policies.
- Universal Life: Universal life is the most basic and conservative type of permanent life insurance policy. The cash value is conservatively invested and usually has a minimum guarantee return and a maximum guarantee return.
- Variable Life: This option has more investment options, usually in various types of mutual funds and index funds with more upside, but more risk.
- Survivorship Life: If you and your spouse are both providing for a disabled child, this is a good policy to have. It insures both of your lives together and only pays out when you both pass away. It’s cheaper than two separate whole life policies, but similar to them in other respects.
Example Of A Permanent Life Insurance Policy
Below is an example of a universal life insurance policy with a $500,000 death benefit. The cost is $830 a month and the cash value has a minimum guaranteed interest rate of 2%, which grows tax-deferred. The person applying for this policy is 43 years old and is in excellent health (Preferred Plus rating).
As you can see from the example above, the cash value grows over time. The ultimate death benefit equals the initial $500,00 amount plus the cash value amount. Option B means upon death, the beneficiaries receive both the death benefit and the cash value. An Option A plan has a lower premium, but the beneficiaries only receive the death benefit. Whatever is left of the cash value goes back to the insurance company.
Things To Look For In A Life Insurer
If you check for life insurance through PolicyGenius, it will do all the heavy lifting for you to find the best life insurance companies to meet your life insurance needs. All the life insurance companies are pre-vetted to insure that only the best compete for your business.
In general, here is what a good life insurance company should have:
- Good Financial Rating: The life insurance company should be highly rated with Standard and Poor’s and AM Best. The more solid its financials and the longer its been around, the higher its rating.
- Long history of operation. The longer the better. Stick with the largest names.
- Clear and easy application process: Everything should be smooth when applying.
- Many Options: There should be plenty of options to choose from since each person has different life insurance needs.
- Competitive Rates: Once you get all the standard options for your life insurance policy, the key is to get the best rate possible. Again, this is where PolicyGenius comes in because you can compare all the rates in one place.
- Clear Terms: You want to get a policy that is understandable so that you have confidence it will pay out in various circumstances. The last thing you want to do is fight your life insurance company to pay the death benefit and perhaps the cash value.
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Life Insurance For Seniors Is A Good Idea
Hopefully you've come to understand all your life insurance options. Living a long and great life is a blessing. Getting life insurance is a way of insuring that everyone you care about gets taken care of financially. Hopefully this article has helped you make a more informed life insurance choice.
Despite being able to self-insurer given my current net worth, I'm converting my term life insurance policy into a universal life insurance policy at age 43. I want to have life insurance to protect my young children and also have a new way to growth my wealth.
The most efficient way to get competitive life insurance quotes is to check online with PolicyGenius, the #1 life insurance marketplace where qualified lenders compete for your business. It's much easier to apply on PolicyGenius than go to each carrier one-by-one to get a quote. I've known the founders for years and they have truly build a fantastic resource for us all. PolicyGenius will provide all the life insurance options to fit your needs.
About the Author: Sam worked in investment banking at Goldman Sachs and Credit Suisse for 13 years. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends time playing tennis, taking care of his family, and writing online to help others achieve financial freedom too. He started Financial Samurai in 2009 and has grown it to be one of the largest independently owned personal finance sites in the world.