By the time you’re over 70 years old the reasons for purchasing life insurance change from when you were younger. No longer are you concerned with protecting your family against premature death with a relatively large policy that lasts for a specific period such as 20 or 30 years. Even through middle age the need for coverage is relatively high since most people are concerned with paying off large debts such as a mortgage or business loan. In either of these cases the least expensive method is generally a term policy.
However, as we age the need for life insurance for seniors over 70 changes because the reasons for insurance change. No longer are we trying to create an estate for family protection. Most seniors are interested in buying insurance which will stay in force for their lifetimes.
Let’s start with reasons to purchase a small policy and what to look for when you do.
- Paying for funeral and/or cremation costs
- Paying outstanding bills
- Leaving small sums to family members
- Leaving money to charity
- Not having to sell assets quickly
Most whole life policies that offer small amounts of coverage, usually up to $30,000 or $40,000 are known as “simplified issue” contracts. These have applications that only require the answers to health questions. The is no paramedic exam and if the applicant can answer all questions in the negative, the policy will be issued after a check of the medication database to confirm that no drugs are being taken for declinable conditions.
While many seniors are uncomfortable with a paramedic exam, in many cases the cost per thousand for coverage with a universal life insurance policy is substantially lower than for a whole life insurance policy without an exam. Depending on what state you reside in, lower cost universal life policies are available starting at $25,000 or $50,000, although in a few instances the minimum face amount is $100,000.
These larger policies are like whole life insurance in that they are typically designed to last for the insured’s lifetime. However, they differ in that their design is more flexible. This means that a policy can be designed without cash value accumulation and therefore will have a lower premium than whole life.
One factor that most buyers are not aware is that most whole life insurance death benefits do not include your beneficiary receiving the cash accumulation. If money has been borrowed from the policy, the death benefit will be reduced by that amount. In rare instances, both cash value and death benefit are paid, but this choice which is made at the time of purchase is much more expensive and generally not taken.
In some situations, seniors will not be able to qualify for immediate coverage due to health issues. If this is the case, they may be able to purchase “graded” coverage. While most insurance companies will offer this alternative, some will pay a percentage of the death benefit during the first 2 (or rarely 3) policy years, while other carriers pay nothing during that time for death from illness. If the insured dies in the first two years and no benefit is paid, the insurance carrier will pay to the beneficiary 100% of premiums paid plus interest. All carriers will pay 100% of the death benefit for accidental death during the waiting period.
For other seniors over 70 that do not qualify for either type of coverage, some companies offer “guaranteed issue” policies. As the name implies, there are no health qualifications for acceptance. This insurance pays nothing if death occurs within 2 years, and can only be purchased from 40 years old up to age 80. Amounts are generally limited to $25,000.
Another reason for seniors over 70 to purchase coverage is not protection, but rather for the payment of estate tax. While this does not apply to most people it can be an effective way to keep assets for the next generation. The typical method used is known as survivorship or “second-to-die” life insurance. As the name implies, the death benefit is paid only when the surviving spouse passes. Because there are 2 deaths involved, the cost of coverage is generally lower as are health requirements. In fact, in some cases only one of the applicants for this policy need be insurable. Before buying this coverage it’s advisable to consult with your tax advisor so that the appropriate amount of coverage is purchased.
Whatever the reason for life insurance over 70, seniors should consult with an independent agent, someone familiar with the issues of older clients and willing to spend the time necessary for them to completely understand their purchase.
