You might not think you need life insurance now that you’re retired.
However, everyone needs at least a little money for burial and funeral costs. You can use your savings for this, but that savings passes through probate after your death and may not be the most efficient way to get things done. Read also: Life Insurance Rates for Seniors.
Life insurance for elderly people, on the other hand, is incredibly efficient. It provides an instant estate for your heirs that bypasses probate, the life insurance claims process is fast, and the death benefit can be used almost immediately to pay for necessary final expenses. As a senior, you have several options:
- Guaranteed Whole Life insurance.
- Universal Life insurance With Secondary Guarantees.
- Second-To-Die Policies.
Guaranteed Whole Life
One of the best types of life insurance for elderly people is a guaranteed whole life program. These policies are often issued by insurance companies that specialize in final expense insurance. The policies are basic whole life plans that are issued with small face amounts. It’s not uncommon for a policy to pay $25,000 to $50,000 in total death benefits. Some policies accumulate non-guaranteed interest and dividends that enhance the basic death benefit so that your policy can potentially adjust for inflation.
The basic whole life insurance plan inflates the pure cost of insurance above the one-year cost for death benefit coverage. The excess premium is set aside and invested in order to pay for the future death claim. The money set aside, called a “cash value” is made available to you during your lifetime so that you can use it. Read also: Life Insurance Later in Life.
A universal life insurance policy with secondary guarantees is often less expensive than a straight whole life plan, but does not have a cash value you can access during your lifetime. Instead, the insurer provides a "secondary guarantee" that prevents the policy from terminating as long as all premiums are paid on time by you.
Normally, universal life offers no guarantees, and instead assumes coverage will remain in force for your entire life based on actuarial assumptions embedded in the policy contract. The secondary guarantee allows the insurer to offer you guaranteed coverage with premiums lower than whole life, thus eliminating the downside associated with traditional UL policies as well as the added expense of whole life.
Second-To-Die Policies
This is a variant of traditional UL policies. It’s ideal if you are married since the policy pays a death claim when the second person named on the policy dies. For example, if your spouse dies before you do, the policy remains in-force until you die. Other than that, life insurance claims for this type of policy are the same as for policies that insure just one life. Read also: Be a Wise Homeowner and Buy Mortgage Life Insurance.
How Much Should You Buy?
You should buy just enough coverage to pay for your final expenses. Normally, a funeral home can estimate the cost of burial and funeral services for you, arrange for pre-need estimates or a guaranteed lock-in of expenses. Pre-need insurance would be purchased prior to death and often involves a special arrangement between a life insurance company and a funeral home. Once the insurance is purchased, and the agreement is signed, you no longer have to worry about your funeral expenses. All you need to do is pay the bill every month.
Examine Quotes Carefully
Quotes from life insurance companies vary, and it’s sometimes difficult to determine how much you’re paying for coverage. Since every insurance company prices its products a little differently, you cannot rely on premiums alone to tell you what the true cost of insurance is. A life insurance illustration often comes with a "cost surrender index." This index details the cost per $1,000 of death benefit.
It’s the only objective measure of cost in a life insurance policy and the best way to compare life insurance policies from different companies. The only exception to this rule is a whole life policy that pays dividends which are used to buy additional paid up life insurance.
With these types of policies, called "participating policies," an internal rate of return (IRR) supplemental ledger is needed to determine the true cost of the death benefit. These supplemental ledgers are available from the insurer upon request but may not be provided to you in the initial quote. Read also: High Rated National and Local Life Insurance Policies for Tragedy.
Considerations
If you have a particularly large estate, you may be subject to estate taxes. The only way to keep your life insurance policy from being included in these taxes is to purchase a life insurance trust. This must be set up by a lawyer.
It’s important that you determine your need for this prior to buying a policy because estate taxes could trigger additional tax that your family isn’t prepared to pay. A financial adviser and a lawyer will easily be able to tell you whether a life insurance trust is necessary and make sure that you are properly protected.