It’s never too late to consider life insurance. At any age, it’s a way to contribute to your legacy and shield your loved ones from the financial consequences of the unexpected. But if you’re over 50 years old, the picture is quite different from the experience of younger persons shopping for life insurance. Here’s what to consider when looking for the best life insurance over the age of 50.
Why do I need life insurance? What’s the goal?
Life insurance can do more than many people think it can do. Before you can pick the right product, take a pause to consider the “why” of your search. What purpose will life insurance fulfill in your legacy planning?
Purposes life insurance can fulfill include:
- Covering final expenses, such as funeral costs.
- Replace income that will be lost upon your passing.
- Settle debts that may remain upon your passing.
- Provide a financial legacy to enrich your successors once you are gone.
Getting clear on the “why” of your life insurance search will help you identify the right product. For instance, if you want to replace income or settle debts, you will need a policy with sufficient benefits to meet those financial goals.
Types of Life Insurance
LIfe insurance fits into two basic categories:
1. Term Life Insurance
Term life insurance ensures a death benefit will be paid to the beneficiaries if the insured person passes away within a given term — usually 10, 20, or 30 years. If the term expires and the insured person is still alive, the policy is voided. The insurance company keeps the premium, and the insured person will need to purchase a new policy if they want to keep the death benefit.
Term life insurance usually has set premium payments that don’t change over time. A term policy will be less expensive than a permanent policy with the same size death benefit. However, term life insurance builds no cash value over time.
2. Permanent Life Insurance
Permanent life insurance policies have no expiration date; they cover the insured person for the entire remainder of their life. In addition to a death benefit, they build cash value over time. In other words, some of each premium payment is recovered as a liquid asset for the policy owner. Think of permanent life insurance as paying down a mortgage vs. term life insurance as paying rent.
Permanent life insurance premiums are higher than term life insurance premiums with the same death benefit, but since a cash value is accumulating, it can serve as a conservative saving or wealth-building vehicle, adding to the legacy you leave to your successors.
Permanent life insurance is further divided into three types:
- Whole Life Insurance. Fixed premium and death benefit, cash value accumulates at a set rate.
- Universal Life Insurance. The premium and death benefit can be adjusted to suit the policy holder’s needs, while cash value accumulation fluctuates with interest rates.
- Variable Life Insurance. Allows the policy holder to allocate the cash value to various investment accounts, leading to more risk but also more potential reward.
Will I have to pay a higher premium over the age of 50?
The short answer is yes. Insurers price life insurance based on the likelihood that the insured individual will pass away in the near future and the company will have to pay the death benefit. That risk increases as you age, and as such the companies charge a higher premium.
However, this doesn’t mean it isn’t worth buying insurance. You could save on premiums by choosing a shorter term; you can also build cash value in a permanent life insurance policy. No matter what age you enter the market, you can almost certainly find a life insurance policy that suits your goals at a reasonable price.
What is “guaranteed-issue” life insurance? Do I need it if I’m over 50?
Guaranteed-issue life insurance is a category of life insurance that does not require a medical exam or health questionnaire. Both term and permanent policies can be guaranteed-issue, and insurers usually have an age requirement (typically between 50 and 85).
Because the risk to the insurer is greater, the premiums are usually higher. However, if you have pre-existing health conditions or have been rejected for other insurance policies, guaranteed-issue life insurance may be the best option if you are over 50 and want the benefits of life insurance for your successors.
Should I go with the lowest premium life insurance?
A low premium may be tempting, but there are many circumstances under which the lowest quote may not be the best option.
Does the life insurance policy fit my goals?
The lowest premium quotes will be for term policies with the shortest terms. If you expect your successors to be financially independent and not in need of replacement income, that might be fine. However, if you expect your passing will be a significant financial hardship for them, either in terms of lost income or final expenses, you may want to consider a longer term or permanent policy that is likely to outlast you.
Additionally, if you want the policy to build up cash value that will transfer to your successors after your passing, the higher premium of permanent life insurance may be worth it.
These aren’t the only considerations. A life insurance professional or financial advisor can help you get clear on matching goals with policy terms.
How healthy is the issuing company?
Don’t neglect the health of the issuing company. Low premium quotes may be coming from insurers that are struggling financially. Several insurers have been around for hundreds of years and are some of the most profitable companies in the world, but if the insurance company fails or becomes insolvent, your death benefit and whole life cash values may disappear. It’s always wise to consider a healthy company for your insurer, even if it means paying a little more premium.
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