It has been estimated that today, with the tremendously large group of nearly 80 million Baby Boomers in the United States, a person is turning age 65 every ten seconds. This makes the U.S. senior population the fastest growing segment of all – and this growth is expected to continue for many years.
For the most part, Baby Boomers and seniors have done a very good job of saving and investing. Now, as Boomers approach their Golden Years, some feel that it may be time to “reshuffle” their assets and cancel various plans that they’ve had in place for years – including life insurance.
Yet, while many people may feel that seniors do not need life insurance, this is not the case. In fact, although many seniors may no longer be earning an income from employment, there is still the possibility that there are debt obligations to be paid and income needs to be replaced. And all of these can be fulfilled using life insurance as a financial planning tool.
Why Seniors Still Need Life Insurance Coverage
There are many reasons why senior life insurance may still be necessary – and an essential part of one’s overall financial planning strategy. Not only can policy proceeds help to remove debt for a senior’s survivors, but they can also provide ongoing liquidity for income replacement and other financial needs.
Some of the primary reasons for obtaining senior life insurance coverage typically include the following:
- Final Expenses – One of the biggest reasons that senior life insurance coverage is purchased is for the payment of final expenses. Today, the average cost of a funeral can be in excess of $10,000 – and this does not include any potential end of life medical or hospice costs that may also be incurred. By having a life insurance policy in place for payment of these expenses, heirs can concentrate on other needs during this already difficult time.
- Payment of Estate Taxes – Another key reason for purchasing senior life insurance is for the payment of estate taxes. In some cases, estate tax liability can be more than half of one’s overall net worth. This can leave survivors with very little else – and in some cases, it puts heirs in the position of having to sell investments and other assets at far below market value for the sole purpose of generating cash to pay these taxes. Alternatively, life insurance can provide the cash that is needed quickly for paying this estate tax liability when it comes due.
- Income Continuation – Oftentimes, when a retiree passes away, his or her retirement income stream also goes away. This can leave a spouse or other loved one immediately destitute. This is why life insurance is oftentimes used for income replacement. The proceeds from a life insurance policy can be used to replace lost income from a decedent so that loved ones can carry on without having to drastically alter their lifestyle. This can be especially difficult for seniors.
- Contribution to Charity – Senior life insurance can also be a great way to donate funds to a favorite charity. There are a number of ways to set up charitable donations via life insurance. One technique is to simply make the charity the beneficiary of the senior’s life insurance policy proceeds. Other methods include adding a rider to the policy in order to pay a certain percentage of the death benefit, or to assign the dividends of a whole life insurance policy to the charitable organization. When naming a charity as the beneficiary of a senior’s life insurance policy, the premium payments are typically considered to be a tax deductible expense.
- Special Needs Beneficiary - In some cases, a senior may be a parent or caretaker to an individual who has special needs. In this case, the senior may realize that the special needs individual will have to be taken care of when the senior is no longer able to. By setting up a special needs trust that is funded with life insurance, the senior will be able to ensure that the individual will be cared for into the future.
- Business Continuation – A senior may also obtain life insurance for the purpose of ensuring the continuation of a business that he or she owns. Life insurance proceeds can provide the needed liquidity to keep the business running while a replacement is found or the company can be sold. Depending on how the business ownership is structured, the life insurance may be set up as a cross purchase agreement, a key man strategy, or other related manner.
- Debt Payoff – Senior life insurance may also be needed for the simple purpose of paying off debt. In the past, many seniors typically had their mortgage paid off and little other debt. Today, however, this is not necessarily the case. There are many older individuals who have debt obligations such as mortgages, auto loans, and credit card debt – and, should they pass away, this debt must still be paid by someone. The proceeds from a life insurance policy can help the spouse or other loved ones to pay off this debt, so that survivors are not saddled with extra payments in what could be an already difficult emotional and financial period of time.
Considerations When Applying
When applying for life insurance as a senior, there are several criteria that the insurance company underwriters will consider prior to approving an individual for coverage. These factors include:
- Height and weight
- Health history (as well as family health history)
- Marital status
- Medications being taken
- Occupation (if applicable)
- Income (if applicable)
- Smoking habits / tobacco usage
- Alcohol usage
- Amount of foreign travel
- Amount of any other life insurance coverage that is in force
In addition to the application questionnaire, it is likely that the life insurance underwriters will also require the applicant to take a medical examination. This exam typically entails providing a blood and urine sample.
These samples are reviewed in order to determine whether the applicant has certain health conditions that would make him or her a potentially higher risk to the life insurance company. If so, the applicant may either be charged a higher amount of premium for their coverage, or they could even be denied for coverage altogether.
Naming a Policy Beneficiary
It will also be necessary to name a beneficiary on the senior life insurance policy. In order for the policy to be valid, it will be necessary for there to be an insurable interest. What this means is that the relationship between the insured and the policy’s beneficiary must be one in which the beneficiary would suffer some type of financial loss upon the death of the insured. This relationship must be evident at the time of underwriting.
According to most insurers, an insurable interest would be present with loved ones such as children, spouses, parents, and siblings. Business relationships also count as having an insurable interest. In addition, charitable organizations may also be included as the beneficiary of a life insurance policy, provided that the organization meets the requirements as a 501(c)3 nonprofit entity.
What is the Best Type Life Insurance to Purchase?
When considering the purchase of a senior life insurance policy, there are many different options to choose from. These include both term and permanent coverage. With term life insurance, you can typically obtain coverage for a reasonable premium price for a set number of years. At the end of that time period, coverage will need to be renewed at the senior’s then-current age.
Permanent life insurance may also be purchased. Although the premium amount is usually higher than that of a comparable amount of term life coverage, these types of policies will also build up cash value savings over time on a tax deferred basis. Therefore, policy holders will have the option of withdrawing or borrowing cash in the future for any need that they see fit if they choose to do so.
Where to Purchase Coverage
When purchasing senior life insurance coverage, it is best to work with a company that has access to several insurers. That way, you will be able to determine which carrier will be able to best meet your specific needs at the best available premium price.
We work with many of the top rated senior life insurance companies in the marketplace, and we can help you to find the quotes that you need. In order to get the quote comparison started, simply fill out the form on this page, and we can take care of the rest.
In addition, we also understand that you may have additional questions regarding the purchase of senior life insurance. If so, we are here to help. Please feel free to contact us toll-free at 888-229-7522 with any question that you may have and we will be happy to assist you. Our goal is to get you the best senior life insurance coverage at the best possible premium for your specific coverage needs.