Senior life insurance? People tend to purchase life insurance policies relatively early in adulthood, when they are starting families and taking out mortgages, to cover costs for loved ones if policyholders were no longer around to earn income. Some retirees think that since they no longer have earned income that requires replacing, they don’t need to obtain life insurance.
But: Life insurance expert Doug Mishkin explains why seniors still might wish to purchase this insurance and how to find affordable life insurance for seniors.
Three Reasons Seniors Buy Life Insurance
Among the reasons people purchase life insurance after age 65…
Estate-tax planning
A life insurance policy purchased through a trust provides heirs with a death benefit that can be used to cover an estate-tax bill, saving those heirs from having to quickly sell other assets to cover these taxes. Only very wealthy families face estate taxes at the moment—the estate-tax exemption currently is $13.99 million—but that exemption could be significantly lower in future years.
Long-term-care (LTC) planning
Permanent life insurance policies can include long-term-care riders that allow policyholders to tap policy death benefits to pay their LTC bills, if necessary. Some seniors consider an LTC rider more appealing than conventional LTC insurance because, unlike conventional LTC coverage, a life insurance policy with this rider provides benefits whether or not LTC is needed…and heirs receive any remaining benefits. Important: LTC riders typically are available to people who purchase permanent life insurance policies up until their mid-70s but rarely beyond.
Late-career income replacement
Plenty of people remain in the workforce well beyond normal retirement age. Having life insurance is prudent if these older workers’ loved ones would struggle to pay the bills without this income. Similar: If a senior has a “life only” pension or annuity—that is, a pension or annuity that stops paying out upon this person’s death rather than continuing to pay his/her spouse—it could be worth obtaining life insurance to protect that spouse against this potential income loss.
Obtaining Life Insurance as a Senior
People tend to think that obtaining life insurance later in life is difficult. Reality: Insurers are now much better at evaluating the risks and longevity odds of older applicants, and that has increased their willingness to offer policies to these applicants for reasonable premiums. The long-term trend toward increasing life spans also works in older applicants’ favor.
But: A lot depends on your health. Someone who has serious health problems could find it challenging to obtain affordable life insurance. That’s true at any age, but the odds of having serious health problems increases as we get older. Fortunately, not every major health issue is disqualifying in the eyes of health insurance companies. It’s often possible to obtain coverage even with a medical history that includes such issues as diabetes, cardiovascular disease and/or cancer—as long as the condition is under control or the cancer is in remission.
For a relatively healthy senior, life insurance will be expensive but not necessarily prohibitively so, especially in the early retirement years. Some hypothetical examples…
A 65-year-old man with no serious health issues might be able to obtain a $1 million permanent life insurance policy for as little as about $21,000 per year, or around $23,000 for a policy that includes an LTC rider.
At 75, those figures could be a little more than $43,000 per year, or $46,000 with the LTC rider.
At 85, it could be near $113,000 per year, with no LTC rider available.
The quotes an applicant receives will vary based on specific health details and other factors. Women have longer average life spans than men, so their life insurance rates typically are somewhat lower at any age.
If the insurance advisor you speak with expresses concern that someone of your age or health situation might struggle to obtain coverage, look for a different advisor. All major life insurance companies offer competitive rates to older applicants these days—including sector leaders John Hancock, Prudential and Mass Mutual—but not all insurance advisors have experience working with such clients. Ask potential advisors, “How many clients of my age have you helped obtain life insurance?” If you have significant health issues, also ask, “How much experience do you have obtaining life insurance for clients who have my specific health issue?”
How much coverage a senior needs depends on the primary purpose that coverage will serve. Examples…
If it’s to pay an estate-tax bill, a financial planner or an estate-tax attorney should be able to estimate how large that tax bill might be—though this amount could change depending on future changes to the estate-tax exemption.
If it’s to cover a surviving spouse’s expenses, then the amount of insurance needed might be based on an estimate of remaining career earnings and/or the amount remaining on the mortgage and children’s tuition bills.
If it’s to cover LTC, then it might be based on estimated LTC costs in your area. Helpful: A typical LTC insurance rider allows the policyholder to access up to 2% of the policy’s death benefit each month to pay for LTC until the entire death benefit is used up. Example: A $1 million in life insurance would provide up to $20,000 per month in LTC coverage…but policy terms can vary.
