By David Rodeck
For seniors, life insurance can be a bit tricky. Not only do policies get more expensive as you get older, they are also harder to qualify for. While finding the right coverage can be a little more difficult, seniors do have several life insurance options to choose from. Understanding the differences between these choices can help you find the right type of policy, for you or an elderly loved one.
Term life insurance
Term life insurance is temporary life insurance coverage. These policies have a set expiration date. While term life insurance is available to seniors, it's an option most people should avoid. First, these policies go up in price as a person gets older. Seniors will pay a lot more for this temporary coverage than when they were younger.
Another problem is that once a policy expires, an elder might not be able to renew. Insurance companies set a maximum age limit for who can buy term insurance. If a person lives past this point, they'll lose their coverage and won't be able to buy a new term policy.
Now, in some situations, term life insurance can make sense for seniors. For instance, if you are still working and your family depends on your income, a term policy could be a good idea until you retire. Term could also make sense if you or an elderly loved one is paying off a temporary debt, like your mortgage. However, this coverage isn't a good fit for leaving an inheritance or paying final expenses. There's too much of a risk that the protection will expire right when you need it.
Permanent life insurance
Permanent life insurance usually makes more sense for seniors. These policies never expire as long as an individual keeps paying their premium and the monthly premium always stays the same. This makes permanent life insurance a good choice for covering final expenses. Once an individual sets up a policy, they know they will be providing money for their heirs to handle these costs.
Permanent life insurance can also be a good way to leave an inheritance behind. Though, be warned that the monthly premiums for larger policies can get quite expensive. The sooner an older adult can set up permanent life insurance coverage, the less expensive it will be.
No health exam insurance
To qualify for regular life insurance, an individual needs to take a medical exam and meet a minimum level of health. For many seniors, this can be a challenge. If an aging adult isn't able to qualify for a regular life insurance policy, they might still be able to get coverage through a no health exam policy.
Like the name states, these policies don't require a health exam, so they are much easier to qualify for. These policies usually ask a few questions about an applicant's health. There are a few serious diseases (e.g. terminal cancer) that can disqualify an applicant, but most are able to obtain a policy.
No health exam life insurance does have some significant disadvantages. These policies charge more per month than regular life insurance policies. They also typically require a policyholder to live for a minimum number of years after they buy the policy before coverage kicks in. However, if an aging adult wants life insurance and can't qualify for regular coverage, a no health exam policy is a good place to turn.
Single premium policies
If an elder is looking to leave money behind as an inheritance, another option worth considering could be a single premium policy. With these policies, an individual can make one large payment to the insurance company instead of many small monthly payments. This can be a good idea if an aging adult has money in savings that they never plan on spending.
There are a few advantages to single premium policies. First, they immediately turn a policyholder's deposit into a larger inheritance. For example, a $50,000 deposit might buy a $100,000 death benefit for your heirs. Second, these policies are usually easier to qualify for than regular life insurance. Since the policyholder is paying more money upfront, the insurance company is taking less of a risk to sell them the policy. Finally, these policies give an elder access to their savings through cash value; money that they can take out of the life insurance while they're still alive. Thus, a senior isn't locking up their savings by buying one of these policies.
David Rodeck is a financial writer based in New York City. He has worked as a financial adviser for New York Life, and has passed the Series 6 and Certified Financial Planner exams. David has been writing professionally since 2011 and specializes in making investing, insurance and retirement planning understandable.