“Am I too old for life insurance?”
This is a question Prosperity Economics Advisors hear frequently, and the answer may be surprising.
The truth is, you’re probably not too old for life insurance. In fact, most mutual companies will insure people up to the age of 85.
The real key to insurability is health—and even then, don’t assume you won’t qualify just because you’ve had health complications in the past.
However, just because you can get life insurance doesn’t mean you should. In an effort to determine the best life insurance for seniors, we must take a look at the whole equation. So we must start by assessing why some seniors are buying life insurance, and then examine the pros and cons from there.
This article is for you if you’re:
- a grandparent (or great grandparent) who would like to leave an inheritance
- a senior looking for greater financial protection and flexibility
- an adult who is considering insuring their parent
6 Reasons Why People Buy Life Insurance After 60
1. To Leave a Legacy
For some, this means leaving more money to their children, grandchildren, or surviving spouse. For others it’s an act of philanthropy–supporting their favorite charities as a final act.
Whole life insurance creates a legacy through the death benefit. Thought, typical financial advice usually persuades people to buy cheap term insurance, which expires around their 60s. This is often because insurance is viewed solely as protection.
Many older couples wish they had saved more, even when their children have left the nest. And whole life insurance provides a way to save money in a safe way, growing your premiums into a larger death benefit that is paid to the beneficiary free of income tax.
2. 3-in-1 Coverage
Not only does whole life insurance provide a death benefit and a vehicle for savings, it can also act as long-term care insurance. Many people purchase the latter and never use it, but with the proper riders, your dollars can be used more efficiently.
Other riders can offer income should you become unable to work, or convert death benefit into living benefits in the case of a serious or terminal illness. “Bundling” these benefits together creates more efficiency than if you purchase those protections separately.
3. Stability and Liquidity
Most portfolios largely incorporate stocks and other equities. Yet the closer people get to retirement, the more risk averse they become.
Life insurance is one of the most stable assets around, and actually improves the other assets in your portfolio for this reason. It’s not a roller coaster ride, and it’s backed by guarantees.
Typical advisors would suggest that the cost of stability is rock-bottom returns. The truth is that whole life insurance returns are tax-advantaged, which equates to better returns than most people realize. Especially when compared with taxable investments.
4. Decrease Taxes, Increase Income
Seniors who “live off their interest” often pay higher income taxes than necessary. Yet those taxes can be reduced significantly by using whole life insurance to sequence income streams between taxable and tax-free sources.
From a cash flow (and net worth) perspective, this strategy is more stable.
In conjunction with the National Network of Estate Planning Attorneys, PEM founders Kim Butler and Todd Langford illustrate why it pays to trade in your bonds for a life insurance policy in the following presentation: “More Money in Retirement.”
5. It Provides a “Permission Slip”
Do you have assets you’re afraid to spend down? You’re not alone—surveys show that one of the top fears amongst retirees is running out of money.
What if you live longer than you expect? What if your assets aren’t enough?
Instead of fearing the above, we want you to be able to celebrate a long life. Whole life insurance can help you stretch your assets, giving you a “permission slip” to:
- Spend assets and still leave an inheritance
- Provide for a surviving spouse
- Creating new income streams with annuities
- Selling your policy with a life settlement
Five such strategies are included in the book, Live Your Life Insurance, by Kim Butler.
“Repay” Adult Children
Even when seniors have adequate resources to support their basic needs, they may find that as they age, they need more support. Paying for help can deplete assets at a rapid pace, and adult children often step in to help.
Life insurance is one way to repay those who have given time or money to assist.
The Pros and Cons of Life Insurance for Seniors
Even with compelling reasons above, there are still scenarios in which life insurance may not make sense.
Pro/Con: It may be hard to qualify
Though mutual companies insure until around 85, health is still a determining factor. This means qualifying could be difficult, and if you do qualify your premiums could still be quite high.
Fortunately, there are alternatives.
- Insure someone else. If there’s someone you’re looking to leave an inheritance to, you can insure them directly. As the owner of the policy you control the benefits, but you can later transfer ownership to them. Check out one of our recent articles for a look at some of the advantages.
- A “guaranteed issue” policy. This is a modest policy that can cover final expenses or provide a small inheritance. The cost is not advantageous, so we recommend seeing if you qualify for a “regular” policy first.
- Improve health. We recognize that this is not an easy task, but proper nutrition and exercise go a long way in improving health. In fact, non-smokers and those at a healthy weight qualify more easily. Even candidates who have had cancer have qualified by living a healthy lifestyle for ten years or so.
Pro/Con: You can borrow against your policy, but should you?
One reason people purchase whole life insurance is to have an asset they can easily leverage and borrow against. This allows the policy to continue to grow and compound without being liquidated.
Here’s what you need to know. First, be prepared to fund the policy for a few years before you start borrowing. This is a long-term savings, not a short-term financing solution. Second, always look for the best way to borrow. Shop around and look at interest rates, the terms of repayment, and other factors. Then make your decision.
Pro/Con: Premiums are more expensive
The older you are, the higher your life insurance premiums will be. This is because the life insurance company has less time to cover your death benefit through the investment of your premiums. The younger you are, the more advantageous the premiums. Yet there’s a silver lining…
Cash value builds up at a much faster pace when your premiums are higher.
The important thing is that you can afford the policy. If you don’t have the cash flow, life insurance may not be the best fit.
Pro/Con: Increased income, long-term strategy
If you’re needing a quick solution to income, this isn’t the right strategy for you. Don’t expect this to be a magic solution to debt or other financial struggles. To properly fund your policy and reap the benefits, you need time.
If you aren’t prepared to spend that time, or need a quick-fix, consider other options.
The Best Life Insurance for Seniors: The Verdict
If you’re under 85, whole life insurance is not beyond reach. The decision is less about age, and more dependent on your health and your financial desires. For long-term savings and transferring wealth, life insurance remains one of the best possible assets at almost any age. Yet the flexibility life insurance provides is not unlimited.
The best life insurance for seniors is the life insurance that aligns with what you want to achieve. For assistance in setting up the right strategy for you, get in touch with a Prosperity Economics advisor today.