Life insurance for seniors

Life insurance for seniors can be a valuable investment but may require different considerations than life insurance for people of other ages. When you're younger, you're typically concerned with replacing your income to preserve the financial well-being of children or a partner left behind. Later in life, you may be more focused on covering end-of-life expenses. The types and amount of life insurance coverage available when you're over 50 may also differ. For example, you may not qualify for the same kind of policies you once did, and the price will very likely be higher. Here’s what you need to know to make smart decisions when buying life insurance over 50:

• The main types of coverage available

• Considerations when choosing a policy

• Specific kinds of riders to look for

The main types of life insurance

Term life insurance

A term life insurance policy provides coverage for a limited period of time, for example, 10, 20, or even 30 years, but when it expires, your protection ends, and there's no value to the policy. Term life is typically more budget-friendly than permanent whole life insurance that builds cash value, but the price difference can narrow somewhat as you age. Policies for seniors typically have a shorter term length – 10 or 20 years at most. A longer term is hard to find and would start to become prohibitively expensive. But it’s fairly easy for a healthy person in their 50s or even 60s to find coverage – the price will just be higher than it would have been in their 30s or 40s. Those in their 70s may find their options limited to 10-year term policies, and after age 80, it can be hard to get a traditional term policy, but final expense policies with lower coverage amounts are readily available.

Whole Life

Whole life insurance is a type of permanent insurance that is designed to last for your entire life, as long as you stay up-to-date with premium payments.¹ This type of policy also has a tax-efficient cash value component, which can help accumulate assets over time.^2,3 You can tap into this cash value while you are still alive, for example, by borrowing against it to help supplement your retirement income.⁴ Whole life insurance typically costs much more than a term life policy with the same coverage amount, but because coverage is permanent and builds cash value, a whole life policy can be used in ways that term life can't. For example, many people will buy a permanent whole life policy to help with estate planning, or to fund a special needs trust after they are gone. A term life policy shouldn't be used for these kinds of purposes for the simple reason that you could pass away after the term ends – and there would be no payout.

Burial insurance

Another type of insurance, called burial insurance or final expense insurance, is specifically designed to pay for end-of-life expenses such as a funeral, cremation, or burial. Monthly premiums are typically affordable, but coverage amounts can be significantly smaller than the typical whole or term life policy – $10,000 or $20,000 at most, and often less – so the actual cost per $1,000 of coverage is typically much higher with burial insurance than other types of policies. These policies also work somewhat differently: like a whole life policy, coverage stays in force as long as you’re current on your payments. However, there is no cash value, only a death benefit paid to your beneficiary.

Things to consider when choosing a policy

Start by thinking about why you want or need to have coverage. Do you want to leave loved ones a significant lump sum to help provide for their ongoing needs? A smaller amount to help ensure personal debts are taken care of? Are you looking to use life insurance to help with estate planning? Are you still working and looking to build assets with cash value? Or do you have another reason, perhaps relating to your business? Whole life policies can also be used to support business planning needs because they can help ensure there are funds to cover issues such as stock redemptions, business loans, and mortgages, supplemental retirement plan funding, or key person indemnification, which can involve compensating for losses or damages incurred by a key individual in the business.

The answer will help you determine what type of policy and how much life insurance coverage you should consider. Then you have to determine what will fit within your budget. Here are a few things to keep in mind.

• Age: As you age, the cost of insurance rises, because there is a higher risk that the insurance company will have to pay a death benefit, and they increase premiums to compensate. This will affect the policy price and the coverage level available to you.

• Health: Your health will also have a direct effect on the cost of policies you can choose from. Younger people tend to be healthier than older people and less of a risk to the insurer, so again, older people pay more and may not qualify for certain coverage. Some policies, like those for final expenses, are "guaranteed acceptance" – meaning that your application will be approved regardless of health. But, these policies generally cost more for a given level of coverage and have more limitations compared to a "medically underwritten" policy where the insurer assesses your health via health questions and medical exams.

• Policy length: Term life insurance, which provides temporary coverage, typically costs less than a permanent policy. And shorter-term policies are typically less expensive than longer-term life insurance policies. But remember, for estate planning purposes, you probably need to have a permanent life policy.

Generally speaking, a term life insurance policy may make sense if you need a significant amount of coverage for a limited amount of time. Assuming you are still young and healthy enough, it could be one of the most cost effective ways to help provide for children until they are financially independent or to pay off the mortgage for a surviving spouse.

Whole life insurance, while costlier, can be a better fit for seniors who need the benefits and features of a permanent policy, including cash value growth and lifetime coverage. If you need coverage to help assure business continuity or to help with estate planning, consider exploring this option first.

Burial or final expense insurance isn’t really suited for any of those purposes. But it can help take care of funeral costs and even help pay off small amounts of debt, helping to ensure your family isn’t burdened with those expenses. And if you’re in your 70s or older – or in poor health – this may be one of the only types of coverage that makes economic sense.

Tailoring your coverage with life insurance riders

If you get a traditional term or whole life policy, be sure to take a look at any available riders.⁵ These are optional coverage provisions that can add a lot of value to a policy, typically for minimal added cost. While each life insurance company may give them slightly different names, the following types of riders can be particularly helpful as you age:

• Conversion rider: This provision, which is commonly offered on term life policies, lets you convert your coverage to a whole life policy without the need for a medical exam. If your health takes a turn for the worse, this could be a valuable option for extending life insurance protection past your current coverage term.

• Waiver of premium: This rider allows you to stop paying premiums in the event of a covered disability while still keeping your policy in place.⁶

• Critical or chronic illness rider: This is what’s known as a “living benefit” rider because it can provide a payout while you’re still alive: If you’re diagnosed with a critical or terminal illness and you meet other requirements, this optional provision can give you early access to a portion of the death benefit to help pay for care.

How to get life insurance as a senior

1. Decide what kind of coverage you need: Think about why you might need life insurance, which type of policy can best meet your needs, and how much life insurance you should get. Need help deciding? Consider speaking with a financial professional.

2. Shop for policies: Consider looking at a few providers to find the one that can offer the specific coverage you need at a price you can afford. Compare details, terms, and costs for each quote. As a senior, it's important to understand that even some of the best life insurance companies have different underwriting requirements, and your medical history may be fine for some and problematic for others.

3. Customize your coverage with riders: Be sure to ask about these optional provisions from life insurance companies which can enhance your protection and add benefits that you can access while you're living.

4. Read the fine print: As you apply for coverage, be sure to go over all the terms of the policy with your financial professional and ask them to highlight key features and restrictions of the policy you’re considering.

5. Consider automating your payments: Many working aged people obtain coverage through work, with premiums conveniently deducted from their pay. But if you’re getting coverage as an individual, you have to remember to keep premiums up-to-date to avoid losing your coverage, so ask about ways to automate your payments.

Guardian can help

Now that you know more about your options, you may actually have more questions, such as whether term or permanent life insurance may be best for your needs or if a more specialized type of policy, like universal life insurance, could be a good fit. Consider talking with an experienced professional who will take the time to learn about your unique situation, listen to your coverage concerns, and explain the different senior life insurance policy options that can fit your needs and your budget. If you don’t know a financial professional, ask your friends for a recommendation – or contact Guardian to find a local financial professional who can help.