Are you too old to buy affordable life insurance?
If you're a senior citizen, it's a mistake to buy a life insurance policy before you weigh the costs of coverage against the benefits it will provide for you and your heirs.
When you're an adult with a spouse, young children or others who depend on you, it makes sense to have a policy that will replace your income if you die. As you age, however, life insurance quotes can become prohibitively high.
Is there ever a point when life insurance is so expensive that it's no longer is appropriate?
"The short answer is yes," says Matt Rowles, a director in advanced marketing for individual life insurance at Prudential Financial. "Old age and poor health will certainly drive up the cost of insurance. If it drives it to a point where it makes little financial sense, that is probably the point where life insurance is not appropriate."
James Miles, a consulting fellow for the Society of Actuaries, agrees. Many middle-income people eventually reach a point of diminishing returns when it comes to life insurance, he says.
You may reach a point where no one is counting on you for financial support. In most cases, grown children eventually become self-sufficient. You may find that your savings and home equity are adequate to provide for a spouse or domestic partner if you die.
In such instances, many people maintain a life insurance policy as more of a bequest than a necessity. If you want to leave a legacy, "life insurance is an excellent way to do that," says Rowles.
Leaving a legacy
Gail Linn, a Certified Financial Planner with MetLife, says creating a legacy for a charity or a loved one is a common reason why seniors continue to pay into a life insurance policy when they no longer have dependents.
"It could be someone you care about, like your children or grandchildren," she says. "Since life insurance death benefits are income-tax free, it is a great way to leverage your dollar and leave money to someone you care about. Not only will that give a child a start in life -- between taxes and inflation and everything else that is happening in this economy -- but they could think kindly of you."
Larry Dahl, vice president at Allstate Financial, says going without life insurance is a serious financial decision, even for the very old. Before you do so, you should sit down and carefully review your finances to determine what your needs are.
Long-term care insurance can preserve estates
You will get the best deal on a life policy by shopping around for life insurance rates, but if you are trying to preserve your current wealth for your heirs, long-term care insurance -- which provides for you when you are too ill to take care of yourself -- may make more sense.
The cost of nursing home care can quickly erode the value of your estate in your final years.
Like life insurance, long-term care insurance becomes more costly as you age, and your general health at the time of your purchase will also impact your premiums. Your 50s is still a good age for purchasing long-term care coverage. Here are the basics of long-term care insurance.
Many insurance choices
If you decide to buy a life insurance policy, you'll need to choose between term life insurance -- which insures you for a specific period -- and permanent life, which covers you for as long as you live if you pay your premiums. Permanent policies build cash value over time. Term policies typically are much are cheaper, but many companies don't issue them to the very elderly.
"Term might not be an option," says Rowles. "With Prudential, the oldest we can issue term insurance coverage is age 75. There are a few carriers who will do it at 80. If someone is in pretty good health at age 75, the odds are strong they will live beyond age 85."
Permanent or "whole life" policies usually are more readily available for older people than term life policies, but be prepared to pay for that access, says Rowles. And for seniors with health problems, seeking a new permanent policy can be prohibitively expensive.
For more details on policy choices, read Insure.com's life insurance basics.
Dahl says seniors frequently buy small life insurance policies simply to take care of their burial and funeral expenses. "Many times seniors will do that to make sure they are not a burden on their family," he says. "It is one more worry they can take off their checklist."
Such policies may be called pre-need, burial or funeral expense policies, says Miles.
"It is almost like prefunding your funeral," he says. "You go into the funeral director and you are sold a life insurance policy typically for a single payment, sometimes for three payments. If the funeral expenses go up, most policies would cover that. Then when you die there isn't out-of-pocket expense for your family."
On the downside, such policies often are expensive compared to the benefits they pay out, he adds.
What if you outlive your money?
Some people with long life expectancies choose to buy longevity insurance to make sure they do not outlive their wealth, Dahl notes. "There are insurance products that say if I give an insurance company 'X' dollars today, I will get nothing unless I live to age 85, and then at age 85 I start getting payments that are really, really good. There are a handful of companies that are offering those types of insurance policies."
The amount you are paid on this deferred annuity depends how much you've invested and the interest rate you receive. The Consumer Federation of American warns that you need to make sure the policy's long-term interest rate is high enough to be adequate. You may be able to do better with a different type of investment, but it likely won't have the tax deferral that's available with insurance products.
A personal choice
In the end, life insurance choices for seniors often are limited by the size of their disposable income, Miles says. Be prepared to make trade-offs. If you choose to purchase long-term care insurance, for example, you may have less money available for providing a legacy to your children through life insurance. It often comes down to personal preferences.
"There is a balance, unless you have unlimited funds," he says. "You are going to have expenses before your death that have to be taken care of somehow. Where do you want to put the emphasis? Where is the greater need?"
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