Table of contents
Take some time to read through this comprehensive guide and you will understand the best reasons to purchase life insurance for seniors ages 60, 70, 80, and 90+.
Grab your coffee and let’s break it down!
Planning Retirement – Why It’s So Critical
How well have you planned for your retirement? It’s a very important question. When I sit down with folks and assist them with their Medicare health planning most people breathe a big sigh of relief and feel they’ve completed their retirement planning. I’m always thinking “how so?”
After asking qualifying questions and documenting their answers on a fact finder, I’m noticing more and more people tend ignore this crucial part of their planning.
There are a lot of reasons why someone would need to purchase life insurance. Some reasons are more important than others and some people have multiple reasons to buy multiple policies.
You have senior citizens looking to just pay for the burial costs, business owners insuring their partnerships, a young couple protecting a mortgage, favorite charities, tax free retirement planning etc.
Which of these examples are important to you? What policy should I purchase for my burial, leave a legacy to my children, or offset my federal and estate taxes to protect my heirs.
There are many plans available such as term life, whole life, final expense, universal life, variable life and so on, so which one do I purchase?
The Advantage of Working with a Broker
First thing you need to ask yourself, do I need have a need worth protecting? Who doesn’t have something or someone worth protecting? Next is to book an appointment with a qualified broker who is educated, patient and licensed to sell life insurance.
I recommend a broker and NOT a salesman for one specific company because you want all the available options on the table in front of you. A broker is appointed with numerous carriers where a captive agent only sells one company. More times than not that captive agent is banging a square peg into a round hole whereas a broker is going to have an array of options for you.
Personally speaking, when I sit down with a potential client I am asking qualifying questions and documenting the answers in a fact finder. A fact finder is going to help me understand why someone needs to purchase life insurance, how much premium they can afford, how much of a death benefit is needed, who their heirs, etc. That fact finder will help me get a clear understand what policy is needed for the situation they are trying to protect.
If you are a senior and retired, chances are that you have seen numerous television commercials for life insurance that try to lure you with terms “Guaranteed Acceptance, No Medical Exam, No Waiting Period, No Health Questions!” For the most part those terms may be true but not for everyone.
Final Expense Insurance
The type of life insurance those commercials are referring to is “Whole Life” which is also known as “Final Expense” insurance.
Final expense insurance are smaller death benefit policies that usually pay for your burial or cremation. Depending on your situation and what type of burial you want you can purchase a policy anywhere from a $5000 up to a $25000 benefit.
Some people feel that $5000 is enough because they want to just be cremated and put into a Folgers coffee can and some folks want up to $25000 because they want the service, burial, site, headstone and big party afterwards for their loved ones.
My job is to sit down and ask you the important questions of what is important to you and find out how much you really need. I will say though that the national average cost is between $7,000 and $15,000. This price range includes the services at the funeral home, burial in a cemetery, and the installation of a headstone. While cremation is gaining in popularity, the traditional funeral is still the most popular manner for disposing of the deceased.
Here are just some examples of costs you could incur for planning a burial. You have a fee for the funeral director’s services which could run anywhere from $1,500 to $2000. The cost for a casket alone could be up to $2,500. Here’s a question, when you thought about planning your death did you ever think of the cost associated with embalming?
Probably not because most people don’t but you can expect that cost to be around $600. As you know it all adds up especially when factoring in cost for using the funeral home for the actual funeral service which is about $700, grave site about $1,200, actual digging of the grave $1,500, burial-containers $1,200, headstone $1,800 etc. I think you get the picture here.
For seniors age 60 and over who are not looking to offset estate taxes, creating legacies, leaving money for charities but just simply looking to cover burial expenses, a final expense plan is the best and most affordable option.
With a final expense insurance policy, you usually have two options you could fall under.
The first option is if you are reasonably healthy and answer no to all the health questions on the application is called a “level death benefit” and is the least expensive option. It is the insurance carrier’s way of rewarding you for staying healthy.
The second option on most final expense plans have something called a “graded death benefit” meaning that you probably answered yes to one or more of the health questions on the application but still qualify for a policy. If you qualify for a graded death benefit you usually pay more premium to be insured but at least you are covered.
Another key advantage of purchasing a final expense policy is that in most cases you are insured once we complete the application with no actual medical exam as I am walking out your front door. Yes, no waiting period and no intrusive medical exam needed.
Another bonus that is built into a final expense plan is that you build cash value as the life of the policy matures. Of course, most people view these plans as covering burial expenses only, but it is comforting to know that you can also borrow the cash against the death benefit if you need it in a pinch.
Summarizing final expense plans is burial insurance for ages 60 and over that is affordable and most people qualify without any medical exams or waiting periods.
Term Life Insurance
Another type of life insurance that a lot of people are exposed to through radio and print ads is called “term life insurance”.
Term life insurance is a type of life policy that will insure you for a term of a certain number of years like brackets of 10, 20, or 30 years. Term life is usually very inexpensive and very affordable.
Let’s say you purchase a 10-year term policy and you live beyond those 10 years, unlike a Universal life or a Whole life plan the insurance stops and all the premiums you payed stays with the insurance carrier. You usually have the option of renewing the insurance after the said term ceases, but it is usually very expensive to do so.
Basically, for any type of term policy to pay out, you need to die within the term bracket you purchased. Saying that, most of you reading this must be thinking term life is a waste of money, but term does have its place in the life insurance world. Most people who purchase term life are looking to protect something like for instance a mortgage or a home equity loan. For example, let’s say you have a young couple who purchase their first home and just started a family.
Purchasing a term life insurance policy in the amount of the mortgage borrowed will insure the surviving family members will not lose their home in case the breadwinner passes away. Maybe you are in your mid 50’s and you need a significant amount of death benefit but just can’t afford a Universal life premium, so you may opt for a 30-year term plan at a much less premium.
Those are just a couple of good examples why term life is a useful life vehicle for some folks. However, if you purchase a term policy at such an affordable rate it will not build cash value.
Universal Life is a plan most people are not familiar with, but this type of life plan is becoming more popular especially when needing a larger death benefit or planning for tax free retirement which I will get into in a moment.
Universal life is also known as a “guaranteed UL.” Most universal life plans are designed for all the reasons we just discussed with regarding to final expense and term plans but build significantly more cash value over the life of the plan. There is a guaranteed death benefit option, which you can choose to pay the minimum premium to make the plan affordable and guarantee the death benefit to pay out to the designated beneficiary.
There are a lot of reason for purchasing a UL policy for example, insuring a business partner in a partnership agreement and making sure if he or she dies you don’t have to sell of the entire business, liquidate assets or make their heirs your new business partner.
Another good reason to purchase a UL is that your heirs may face an estate tax upon receiving their inheritance, depending upon the state of residence and the amount. Life insurance benefits can be used to partially or completely offset this cost for your heirs. The biggest reason for a significant amount of death benefit someone might purchase a UL for is the death benefit can also serve as a supplement to other inheritance funds you may wish to leave your heirs.
In other words, leaving a sizable amount for your loved ones in the form of a legacy gift. Another option that is not talked about often is to overfund the premium and build significant cash value to borrow against later during your retirement years, which is known as tax free retirement planning.
In the right circumstances, though, perhaps even more compelling is the concept of tax-deferred accumulation and tax-advantaged distributions that exist in today’s stunning array of Guaranteed Universal Life policies. Accumulating large sums in modern life insurance policies can create remarkably efficient income streams for the right client.
For example, let’s say we have a middle-aged man in his 40s who earns a considerable amount of income and has maximized all his investments such as an IRA, 401K etc. but has more money he would like to invest. He could then purchase a UL policy worth a $1 million-dollar death benefit.
These numbers I’m about to state are skewered so don’t take them as gospel but let say the cost of the insurance is $500 a month to keep the guaranteed death benefit in force but he decides to overfund his policy with an extra $500 per month. This UL policy which is indexed against the S&P 500 has an average return of about 7%, this middle-aged man in turn can start borrowing against his policy in his 60s anywhere between $30,000 to $40,000 a year for the next 15 to 20 years.
These numbers I’m stating are not that far off but of course to get more real substantive numbers we need to factor in age, health, income, and length of planning and an illustration would need to be provided by the insurance carrier to project the growth of the policy and real cash values.
Think about this for a moment. You can get a head start for your children when they are toddlers by overfunding a UL for them, and by the time they are finished with college and paying their own bills, they can take over the life premiums and it will cost them a fraction of what it would cost them by purchasing a UL in their 30s. Think of the cash value that would have accumulated at that point!
So, as you can see different strokes for different folks. There are many life programs to choose from, but you must choose for the right reasons. You need to factor age, are you in your 20s, 30s, 40s, 50s, or age 60 and over? Why are you purchasing life insurance?
Is it for retirement planning, leaving a legacy, burial costs, debt or income replacement, covering children’s expenses like college tuition, or a lot of other reasons already discussed? Premiums are based on age, health, zip code, height, weight and few other variables. Ultimately no matter the reason for the purchase of a life policy, you need to be able to afford the premium.
A good broker will ask you the right questions to assist you in determining the correct plan for your needs that you can afford.
Joe Bachmeier is a co-founder of BGA Insurance Group
Contact us – (855) 494-0097