On the Question of Life Insurance for Seniors

The reasons for buying any kind of life insurance are always personal. What makes perfect sense for one person may not add up for another. For example, a 65-year-old man wants to buy a million dollar life insurance policy. He doesn’t have to insure against lost income. He doesn’t need to pay off his home. He just wants to leave behind a large amount of money for his family. It’s his dream. Since he can afford it, it’s his choice.

Life insurance usually is intended to maintain a family’s lifestyle in the event that one or both of a family’s wage earners dies prematurely. Most seniors do not have to worry about this. The vast majority are no longer providing for their children. Many have already paid off their homes or have sold them for a profit and moved into a more affordable housing. The traditional reasons for life insurance may not apply, but some untraditional ones may.

Some seniors are concerned with final expenses—funeral and burial costs. These costs have risen dramatically in the last decade or so. Some seniors who thought they had saved enough for final expenses or had a small life insurance policy to cover them are finding that they might come up short. They can take out final expense policies. Generally small, some final expense policies do not require a physical. They are known as “guaranteed acceptance” policies.

To minimize risk on the guaranteed acceptance policies, insurance companies often require a two-year waiting period before paying full death benefits when the death is from natural causes. This is to prevent the writing of “deathbed” policies that insure patients who are terminally ill. If the insured dies within the first two years of the policy, most insurance companies will pay the beneficiary the premium amounts plus interest as a death benefit, but not the full face value. Accidental death—from an automobile accident, for example—is covered as soon as the policy is written.
Another unconventional type of policy is the single-premium life insurance policy. The premium is paid upfront in a lump sum and covers the policyholder until death. Depending on the age of the policy holder, the death benefit can be two or more times the amount of the single premium. Since life insurance death benefits usually are exempt from estate taxes, many seniors use a single-premium life insurance policy as a tool to pass on wealth to their heirs tax-free.

Some single-premium policies can include a provision to pay for certain kinds of medical care, such as nursing home care or hospice care. In this sense, the policy functions as a kind of long term care insurance. Any money remaining in the death benefit at the time of the policyholder’s death is passed on to the beneficiary.

Most seniors do not need life insurance for the traditional purpose of income replacement, but some seniors decide that life insurance is a tool that can help them realize their final goals and dreams.