Choosing the best life insurance policy as a senior can be tricky. Almost every senior is looking for two basic components in a policy, one that is affordable and will pay out the out the death benefit when he or she passes away. As simple as that sounds, finding a policy like this is rare. Far too often, seniors end up purchasing a policy that doesn’t fit their needs and is ambiguous to them and their families. This ambiguity often leads to despair when the senior passes away and the family tries to collect on the policy.
A common example of this is guaranteed acceptance or issue life insurance. Colonial Penn advertises heavily for this right now on TV especially in the daytime when a large segment of the viewing audience is seniors and the airtime is less expensive. Colonial Penn uses Alex Trebek as their paid spokesperson boasting how you can’t get can’t be turned down and the insurance is less than $10 a unit. Sounds good doesn’t it? Well it isn’t for most seniors. When you actually read the policy and see what you are buying, quickly you realize that this is a terrible option for healthy seniors.
The fine print states that if you die in the first two years of the policy from natural causes (anything other than an accident) your family will not receive a dime (just your premiums will be refunded to your beneficiary plus some interest). The problem is too many seniors purchase this type of insurance when they could have qualified for a better policy which would have given their families much more insurance for the same price and without any waiting period.
What Are Your Life Insurance Options as a Senior?
First, let’s go over the common options a senior has when it comes to purchasing final expense life insurance. The choices are listed here:
*Term life insurance
*No-lapse guarantee universal life Insurance
*Whole life insurance
*Simplified issue life insurance
*Guaranteed acceptance life insurance
*Self-insurance-put your money in the bank
Traditional Fully Underwritten Term Life Insurance
If you are a senior who is in good health than a traditional term life insurance policy is the first option you should look at. The cost-per-thousand is usually the lowest compared to the other policies. The major drawback to a fully underwritten term life policy for a senior is fact that you can outlive it. If you need a policy that is guaranteed to payout no matter how long you live then you should look at other options.
Advantages: Least expensive, a lot of coverage for your dollar, no waiting period-coverage begins once you are approved. Have the option to convert term into permanent coverage before the age of 70 on most policies.
Disadvantages: Have to be in good health; need to take a free medical exam, coverage lasts for a specific amount of time which means you can outlive it.
Simplified Issue Term Life Insurance
Simplified issue term life insurance doesn’t require a medical exam and only asks a few health questions. However, since it is so easy to obtain, it usually isn’t a great policy. Since it is term insurance, the policy will expire at some point. Also companies like AARP/NY Life or Globe have their premiums increase on every 5th birthday (on the step-rate policy) eventually making the prices unaffordable for many seniors on a budget.
Advantage: Easier to obtain, lower initial prices.
Disadvantage: Very expensive compared to the other options available, will likely outlive it and the premiums likely will increase over time.
*Editors Pick* No-Lapse Guarantee Universal Life
A no-lapse guarantee universal life (UL) insurance policy to age 111 or 121 is one of the best if not the best policy of all the final expense options for a healthy senior. Unlike whole life or traditional universal life policies, a no-lapse guarantee universal life policy ensures the premium will never change or coverage will lapse as long as you make your on-time premium payment. In addition, this policy is very affordable compared to the other options available for seniors. And even more important is the fact that the coverage lasts forever. On top of that no-lapse universal life insurance has guaranteed interest rates which enable the policy to build a small cash value. The no-lapse UL is the policy of choice for many affluent seniors looking to protect their estate. Most policies start at $25k and go on up.
Advantage: One of the best final expense options for a healthy senior, least expensive way to obtain permanent coverage, premiums don’t increase as you get older or if health changes, can’t outlive it, builds a small cash value and coverage begins once policy is approved.
Disadvantage: Have to be in good health to qualify and requires a medical exam paid for by the insurance company.
Simplified Issue Whole Life
Whole life is what most people associate the overall concept of life insurance, especially seniors. As the name implies, coverage lasts for your entire life. However, whole life insurance is very expensive and is typically not a great deal financially speaking. When compared to the no-lapse guarantee policy described above, whole life costs generally more than 2x as much for the same coverage amount. That means you can get twice as much life insurance if you get a no-lapse guarantee or pay half as much and save. What is usually so attractive to seniors about simplified issue whole life is its simple approval process. Typically there are only few health questions and doesn’t require a medical exam. For some seniors who had some medical issues in the past or even some currently and don’t want to do and exam and don’t mind paying more for it this is another option.
Advantage: Easier approval process-typically only a few health questions and no health exam, coverage is forever and no waiting period.
Disadvantage: Very expensive compare to other options-particularly the no-lapse guarantee universal policy.
Guaranteed Acceptance Life Insurance:
This type of life insurance should only be bought by seniors who were declined elsewhere and are uninsurable due to health problems. Since you can’t be turned down, everyone is accepted between the ages of 50 and 80. The drawbacks as mentioned above are the cost and the two-year waiting period before the policy insures you for natural causes.
Advantage: Can’t be turned down, coverage lasts forever.
Disadvantage: Policy won’t pay out if you pass away of natural causes in first two years, expensive for amount of coverage you get.
Self-Insure-Put money in the bank
This is a very good option but it requires a lot of discipline. If you were to open up a savings or investment account and allocate a certain amount of money to it each month instead of paying the insurance company, you could be self-insured within a period of time, i.e. will have enough to cover final expenses without the need of an insurance company.
Advantage: The money is yours-liquid and if the senior lives a long time you would save money vs. paying the insurance company.
Disadvantage: Risky, if the senior passes away in the first few years there will not enough money in this account yet to fully cover the cost of a funeral. In addition, it takes a lot of discipline to deposit money every month when it isn’t a required bill.
My advice to seniors and their families in the market to buy life insurance is to know your options and make an informed decision. Final expense life insurance is its own market. Most agents who don’t specialize in final expense or senior life insurance are not educated enough and don’t have the experience to truly help you make the best decision for you and your family. The only way to avert this is to find an agent who specializes in working with seniors and is honest or to educate yourself so you can shop around and choose the best policy for you. The odds are in your favor for the latter.