Term life insurance is a type of insurance that provides a death benefit for your beneficiaries if you die before the term expires. This type of life insurance is known for a mix of simplicity and low rates, making life insurance easy to access for the masses.
However, as you age, your needs change. As a senior, chances are that your children have grown up and are now financially independent. So, is it really worth it for you to consider life insurance, term life insurance, or otherwise?
The simple answer is a resounding, “yes.”
Though you may not have children that depend on you anymore, you don’t want to leave them with a financial burden when you die. So, at the very least, you should have enough life insurance to cover your end-of-life, funeral, and burial expenses.
The importance of life insurance may even go further than that. Ultimately, many of us want to leave a legacy behind. One way you might do so is through your estate. However, if you’re not careful, estate taxes could eat up a significant portion of what you plan to leave behind for your loved ones. Life insurance can help alleviate tax-related risks, protecting your estate and those you leave it behind for.
Below, we’ll talk about the pros and cons of term life insurance for seniors and alternatives you can consider.
Advantages of Term Life Insurance for Seniors
There are several ways term life insurance can be beneficial for seniors. Some of the biggest advantages of this type of insurance for seniors include:
Cost-Effective Coverage
Life insurance gets more expensive as you age. So, it wouldn’t be surprising if more expensive permanent life insurance options were simply out of the question for seniors. After all, most seniors live on a fixed income. So, when it comes to life insurance, it’s important that premiums are affordable.
Term life insurance is typically very affordable, even for seniors on a fixed income. In fact, a 60-year-old male in good health who doesn’t use tobacco will likely pay under $100 per month for a $250,000 10-year term life insurance policy.
So, a term life insurance policy could open the door to a meaningful amount of coverage in exchange for a relatively minimal premium, even if you’re a senior.
Financial Protection
Although you may not have children who depend on you financially anymore, they may come to you for help from time to time. Moreover, you don’t want to leave your spouse behind with nothing. That could result in a significant financial hardship. Term life insurance can offer financial protection in these instances.
After all, if you leave behind a meaningful term life insurance death benefit, those who depend on you will have plenty of financial support to make it through the years ahead.
It’s worth mentioning that term life insurance can also provide protection for your assets. For example, if your family can’t afford to pay the taxes on your estate when you die, they may have to sell assets like your family home to cover the cost. A term life insurance policy could help your family pay for your estate taxes without jeopardizing any asset of value you plan on leaving behind for those you love.
Flexibility
As a senior, you may believe that any life insurance policy you purchase is going to be severely limited in terms of flexibility, but that’s not necessarily the case. In fact, chances are that you’ll enjoy significant flexibility. For example:
- Terms: You can typically choose the term that makes the most sense for you. That may include a term as short as five years or as long as 20 years.
- Coverage amount: You can customize your coverage amount to fit your needs. For example, if you’re simply interested in covering end-of-life and burial expenses, a $50,000 policy can be plenty. However, if you want to protect your estate from a significant tax burden, you may want to purchase a policy with hundreds of thousands of dollars in coverage.
- Riders: You may be able to add riders to your policy to further customize it to your needs. For example, a return-of-premium rider could mean you get the premiums you paid back if you don’t die before your term expires.
No Medical Exam Policies
One of the biggest concerns seniors have when it comes to purchasing life insurance is whether or not they’re healthy enough to qualify. There are specific plans designed for those with these kinds of concerns. They’re known as “guaranteed issue” or “no medical exam” life insurance policies. As their names suggest, you won’t have to submit to a medical exam to qualify for one of these policies.
However, it’s worth mentioning that if you opt for a no medical exam life insurance policy, you may be limited in terms of the length of term, riders, or even the amount of the death benefit that’s available to you. After all, insurers have to consider the risks when they cover consumers. Without a health exam, the risk is significantly higher for the insurer, and that increased risk will likely be priced into your premiums.
Nonetheless, if you’re worried about your health status disqualifying you for life insurance policies, a guaranteed coverage term life policy may be just what you’re looking for.
Drawbacks of Term Life Insurance for Seniors
Although term life insurance is a quality product that makes sense for most seniors, there are some drawbacks to consider before you dive into a new policy. Some of the most significant drawbacks to consider include:
Coverage Limitations
As mentioned above, you pose a larger risk to life insurance companies as you age. As such, these companies must work to minimize the risk. Insurance companies often mitigate risk by implementing age-related limitations. For example, the following limitations may apply to seniors looking to purchase a term life insurance policy:
- Term Limitations: You may be limited to short terms. For example, you may only qualify for terms of 10 years or less. In this case, there might be a high likelihood that you’ll outlive your life insurance policy.
- Coverage Limitations: You may face smaller coverage caps than consumers who are younger. For example, you may not qualify for millions of dollars in life insurance coverage.
- Rider Limitations: Finally, there may be limitations involved in the riders you can access as a senior citizen.
Premiums Increase with Age
It’s important to consider the long-term cost of life insurance, regardless of which insurance product you sign up for. As mentioned above, premiums often increase with age. So, when you lock in a permanent life insurance policy, while premiums may be relatively high at the time, they’ll never increase.
On the other hand, when you purchase a term life insurance policy, your premiums may be relatively low. However, if you outlive your policy and need to renew, re-enroll, or convert your term policy to a permanent life insurance policy, you could end up paying significantly higher premiums.
If you’re looking for life insurance that will come with consistent premiums no matter how long you live, term life insurance may not be your best option. In this case, a permanent life insurance policy will likely be a better fit.
No Cash Value
One of the benefits of life insurance is that you can use it as an investment — at least in some cases. Term life insurance isn’t one of those cases. That’s because term life insurance doesn’t build any cash value.
Permanent life insurance, or whole life insurance, does build cash value. So, when you purchase this type of insurance, if you need to fall back on a portion of your death benefit to make ends meet in retirement, you can. In some cases, you may even be able to use a portion of your death benefit to cover the cost of long-term care.
Unfortunately, that’s not the case for term life insurance. In fact, the only way term life insurance has any cash value outside of the death benefit is if you purchase a return-of-premium rider and outlive your policy. But that cash value won’t grow as it does in the case of a whole life policy.
Considerations Before Purchasing Term Life Insurance
If you’re considering purchasing term life insurance, you’re likely on the right track. Although there are some drawbacks to coverage, it offers a comfortable balance between cost and peace of mind that you simply can’t get with other insurance products.
On the other hand, you should never blindly dive into any financial decision, whether that decision is to purchase a life insurance policy or to refinance your home. There are pros, cons, and other considerations that you should weigh before making any significant financial moves.
When it comes to purchasing term life insurance, some of the most significant factors to consider before you do so include:
Health Status
Your health status will play a significant role in your life insurance premiums in two ways:
- Eligibility: Life insurance companies aren’t required to provide you with coverage. They must weigh the risk to themselves. If you have significant chronic health conditions, you may not qualify for life insurance at all.
- Premiums: Your premiums are largely dictated by the risk the insurance company must accept when they sell you your policy. As such, the higher the risk associated with your policy, the higher your premiums. That means you’ll likely pay significantly lower premiums if you’re in stellar shape than someone who is generally in poor health.
Ultimately, if your health status isn’t up to par, you may be denied coverage. And even if you’re not denied coverage, poor health can make life insurance premiums cost prohibitive.
Financial Situation
Life insurance is only worth the premium if you can afford to pay the premium. Ultimately, you shouldn’t put yourself in financial hardship now to take care of financial concerns after you die. Instead, you should assess your financial situation and determine if you can afford life insurance in the first place. If you can, then decide how much life insurance you can afford.
Keep in mind that the amount of coverage you purchase has a significant impact on your life insurance premium. For example, if you purchase a policy with $500,000 in coverage, you’ll pay a higher premium than someone the same age and in the same health who purchases a $250,000 term life insurance policy.
If you shop for coverage and determine the premiums are too high, consider looking into lower coverage amounts. This may make your premiums more affordable.
Beneficiary Needs
Finally, it’s important to make sure that your term life insurance aligns with the needs of your beneficiaries. After all, if you’re not planning on using the benefits of your term life insurance policy, your beneficiaries will. So, it’s important to understand their needs for two reasons:
- You Don’t Want Too Little Coverage: First and foremost, you want to ensure that your beneficiaries’ needs are met. You don’t want to purchase a policy that provides too little coverage to avert financial hardship for those you love when you die.
- You Don’t Want Too Much Coverage: While you don’t want too little coverage, it’s not wise to have too much coverage either. As mentioned above, your life insurance policy’s coverage amount will play a significant role in the amount of your premium. So, if you purchase too much coverage, you’ll have a higher out-of-pocket cost than necessary.
So, it’s important to think about what your beneficiaries need. If they’re old enough to understand their needs, have a conversation with them to discuss what you plan on leaving behind and what they’ll need when you die. Although it will likely be an uncomfortable discussion, it’s a good idea to know exactly how much support your death benefit needs to provide for your loved ones.
Alternatives to Term Life Insurance for Seniors
Term life insurance is an option for seniors, but it’s not the only option you have when it comes to life insurance. There are other types of life insurance to consider. For example:
Whole Life Insurance
As its name suggests, whole life insurance is a type of life insurance that provides a death benefit for your whole life, regardless of how long that may be. That is, as long as you make your premium payments.
Although this type of life insurance is typically far more expensive than term life insurance, it comes with several perks. First and foremost, whole life insurance policies build cash value. That means that if you fall on hard times in retirement, you may be able to lean on your policy’s cash value for support.
You can also sign up for riders that can expand that assistance when you purchase a whole life insurance policy. For example, a long-term care rider gives you the ability to use a portion of your death benefit to cover your long-term care expenses. That could come in handy considering the fact that nearly 70% of Americans ages 65 and older will need some sort of long-term care at some point in their lives.
Final Expense Insurance
Final expense insurance is another type of insurance that is just what it sounds like. It’s a unique type of life insurance designed to cover the cost of your final expenses. For example, this type of insurance covers:
- Remaining Medical Expenses: These are expenses like hospice bills that weren’t covered by a health insurance policy.
- Funeral and Burial Expenses: Funeral and burial expenses can easily cost thousands of dollars. These are the types of expenses you don’t want to leave your loved ones to cover as they grieve your death. Final expense insurance can help absorb these costs.
- Legal Expenses: Finally, final expense insurance can help cover any legal expenses associated with your death that your estate would otherwise need to pay before your beneficiaries receive what you leave behind for them.
Ultimately, if you don’t plan for these expenses, they’ll fall on your estate. That could mean your loved ones are forced to sell assets you left behind for them in order to cover your final expenses. Final expense insurance helps alleviate this risk.
Self-Insurance
Of course, you don’t have to purchase life insurance at all. You may decide that term life, whole life, and final expense insurance simply aren’t what you’re looking for. In this case, your best option is to self-insure. However, if this is your plan, it’s important that you’re highly disciplined in the process.
Self-insurance involves making sure that you make regular contributions to an insurance-focused investment portfolio. It’s critical that you make wise investment decisions and start early enough for your investments to grow to be worth something significant.
Moreover, when you self-insure, you’re taking a significant risk. After all, nobody knows when they’re going to die. If you decide to self-insure, and you die earlier than expected, the money you’ve saved to cover your final expenses and leave a legacy behind may not be enough. As such, you could be risking assets of value.
Before you decide to self-insure, you should speak with a financial advisor to ensure you’re making the right choice.
The Bottom Line
Term life insurance is typically worth it for seniors. However, you should consider all of your options and how they may meet your needs before you purchase a policy. Still have questions? Contact an agent at Fidelity Life at 1.866.853.3013 for more help or to get a quote.
