The Pros and Cons of Senior Life Insurance

By: Bradley Steffens

Is it a good idea to purchase life insurance after the age 65? The answer is not an automatic yes or an automatic no. It depends on the financial choices you have made throughout your life and the financial goals you have left to fulfill.

The primary reason to have is to safeguard your family against a loss of income, especially if the loss is sudden or unexpected. The death of a wage earner can leave a family scrambling to make the house payment. If the survivors cannot afford the house, they may have to sell it. The loss of income may put a child’s college of choice out of financial reach. Younger children can be hit hard as well. Music lessons and sports activities may be too expensive to continue. The family’s whole lifestyle can be affected.?

To avoid having this happen, some people buy term life insurance. As the name suggests, term life insurance insures a life for a specific period of time, a term of 10, 20, or 30 years. Since term life insurance is “insurance only" with no investment features, it costs less than insurance with built-in investments, such as whole life.

With the lower cost, wage earners can afford to insure their lives for hundreds of thousands—even millions—of dollars to help their family maintain its lifestyle during these years.

The vast majority of people outlive this period of financial responsibility. Children grow up and graduate from college. Couples pay off their mortgages or sell their homes for a profit and downsize. The “safety net" provided by term life insurance is no longer vital.?

By retirement age, most of the saving a couple is going to do probably has already been done. They may have savings accounts, Individual Retirement Accounts, 401(k)s, whole life insurance, or annuities. If a retired couple has more income than they need to live on, they can continue to invest, of course, but insurance probably is not the best place for their money. The premiums are high and the return on investment is low.?

Unfortunately not all seniors reach retirement with substantial savings. As a result, they may not have enough in cash on hand to pay for funeral and burial expenses. They might consider final expense insurance. This is a life insurance policy taken out for a relatively small death benefit—enough to pay funeral and burial expenses. Final expense insurance allows seniors to cover these costs at an affordable price per month.?

Another kind of insurance appeals to seniors at the opposite end of the economic spectrum: those who have accumulated some wealth. They often are looking for ways to minimize their estate taxes so they can pass as much of their wealth as possible to their heirs. Since life insurance death benefits generally are exempt from inheritance taxes, some seniors opt for single-premium life insurance. As the name suggests, the premium for this type of life insurance is paid in a lump sum. It covers the insured until death. The death benefit is guaranteed, but varies it in size, depending on the age and health of the insured. The death benefit can be two or three times the size of the single premium (or more). Best of all, it can be structured to pass to the beneficiaries tax-free.

Life Insurance
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