Is life insurance necessary for seniors? And what is the best choice for life insurance without a medical exam? Term versus whole life insurance? We explain the options and things you should think about when it comes to life insurance later on in life.
You may have been to a “free financial planning seminar” held in a restaurant where the speaker touts the importance of life insurance as part of your retirement strategy. Or perhaps you have a term policy expiring and wonder what you should do or wish to convert it to something with smaller coverage, just enough to cover final expenses. With so many products and so-called experts, it is hard to know what type of life insurance is best.
Do You Need Life Insurance?
The purpose of life insurance is to provide money to your spouse or heirs upon your death, typically to replace your lost income. If you are retired with less expenses, income replacement may not be as critical. Do you still need life insurance?
You May Need Life Insurance as a Senior If:
- You have a mortgage or other debts and want to assure that there is money for your spouse or heirs to cover those expenses
- You desire additional retirement income to supplement a pension, social security and/or funds from a retirement account
- You want to make sure a surviving spouse has income to live on and/or to cover final expenses
- You want to make sure you have funds to cover major medical expenses
Types of Life Insurance – Term
Term life insurance is a policy that will offer coverage for a set number of years, typically 10-30 with a fixed monthly premium.
Advantage – Offers the most coverage for the lowest premium
Disadvantage – You may outlive policy and not receive a death benefit.
Although most companies offering term insurance require a medical exam, some do not. Mutual of Omaha, American National, Principal Financial Group and Transamerica are several companies that offer life insurance with no medical exams.
Variations on Term Life insurance for Seniors
One way to continue an existing term policy past expiration is to convert it to an Annual Renewable Term. Unlike with straight term insurance, premiums increase each year since you are paying for your current risk. However, this may a less expensive option than whole life if you need to extend a term policy for only a few years, perhaps until a mortgage is paid or kids are out of school. Often no medical exam is required.
Quality of Life Insurance provides benefits to you while you are still living (also known as accelerated benefit riders). Under this policy, you or your loved ones can receive a portion of the death benefit to pay for medical expenses due to a chronic condition or terminal illness.
Types of Life Insurance – Whole Life
Whole life insurance is a policy that covers you for your entire life and provides a cash value accumulation that increases over the life of the policy in addition to the death benefit.
Advantages – Unlike term life insurance, whole life policies do not expire. The cash value can be part of estate planning and a portion can also be borrowed against or withdrawn prior to death, often to help with living or medical expenses.
Disadvantages – Has more expensive premiums than term insurance and cash value often fluctuates, depending on market conditions. Since the initial premiums are used to pay for the cost of insurance, it can take years to build up a decent cash value.
Although many companies require an exam, some do not. Mass Mutual and Gerber offer whole life insurance policies with no medical exam.
Variations on Whole Life insurance for Seniors
Guaranteed Issue Whole Life Insurance aka Senior Life Insurance or Burial Insurance, is for adults 50-85. It offers guaranteed acceptance despite your health condition, with no medical exam and up to $25,000 in coverage which can be used for funeral or other burial expenses. However, what is often not disclosed is that there is a “maturity requirement” that needs to be met, typically 2-3 years, before benefits will be paid in full. Other types of whole life insurance without medical exams include Level Death Benefit Whole Life and Graded Benefit Whole Life. Both offer a fixed death benefit and cost.
Universal Life Insurance allows you to increase or reduce your death benefit at any time and to pay your premiums at any time in any amount (subject to limits). As with whole life insurance, part of your premium minus the insurance cost is put into an interest earning account allowing you to build cash value over time. And, similar to whole life, you can borrow against the cash value. Beneficiaries will not have to pay tax on the proceeds received from the policy. While typically less expensive than whole life insurance and with the flexibility to stop paying premiums in the event of financial challenges, you can also run the risk of not having enough cash value to cover the cost of the insurance.
With so many options for life insurance with no medical exams, it pays to get the advice of a professional and to compare plans to see which one is best for your financial needs.