Financial Planning for Seniors
How to cover senior living costs
December 06, 2022
Assessing your financial situation and determining if life insurance would benefit you is an important part of estate planning, but choosing the right policy for your situation can be a challenge. It can be even more difficult for older adults who may not qualify for certain policies based on age or required medical exams.
This blog will look at the different life insurance policies for seniors and dig into why certain policies are a better fit than others for older adults.
Because many whole life insurance plans have age limits and higher premiums for older adults, finding the best whole life insurance for seniors can be a challenge. While term life policies are more flexible, those with a longer term may still have age caps. That’s why the best life insurance option for older adults may be a short-term policy, such as a 10-year plan, or a final expense whole life policy, which keeps rates low by offering a smaller benefit.
In some cases, you may find that life insurance isn’t worth the investment at all. Though AARP offers life insurance for seniors, even they mention that life insurance doesn’t always make sense for older adults. “If you have debt, and your spouse and others depend on you,” AARP notes, “then [life insurance] may be a good choice. It may not be if you have little or no debt and your retirement assets are substantial.”
A common approach to calculating life insurance coverage is determining how much assistance your dependents will need and how long they’ll need it. Older adults who don’t have young children might be more concerned with how to spare surviving family members from taking on their outstanding debts, such as a mortgage, credit card liability or medical bills. For this situation, Forbes recommends a simple equation:
Financial obligations you’d like to cover – minus your available assets – equals your coverage needed.
Depending on your personal situation, you might use one or both of these methods to calculate the best coverage for you.
There are two things you can do to help determine which plan makes the most sense for your situation. The first is to have a clear idea of why you’re seeking a plan – whether it’s to protect family from debt, cover funeral costs or provide a legacy. The second is to understand the limitations of different life insurance options as well as what they offer. Fortunately, we’re about to cover many of the options you’ll encounter if you’re shopping for plans.
Permanent life insurance, frequently used interchangeably with whole life insurance, lasts your entire life and comes with a savings account in which you can:
These benefits, along with higher death benefits and the fact that you have to pay premiums for the entire life of the policy, mean permanent policies cost more than term life policies.
While there is no universal age limit for permanent policies, they are commonly capped between 70 and 85 years of age and premiums increase based on the age of the policyholder.
That said, not all policies are created equal. Below are some types of permanent life insurance policies you may encounter.
Whole, or ordinary life insurance, is the most common type of permanent life policy. A policyholder pays a consistent monthly premium for a predetermined death benefit and a savings account that is funded by company-paid dividends.
Universal life plans offer slightly more flexibility than a whole life policy. Passing a medical exam could increase your death benefit, and you may be able to alter your premium payments if your plan savings account has adequate funds to cover the difference.
With a variable life policy, your savings account can be invested in stocks, bonds and money market mutual funds. As with any portfolio, you’ll need to consider the risks and possible rewards of these investments. Some – but not all policies guarantee that your death benefit will be maintained, even if your investments do poorly.
A variable universal life plan combines the flexible premiums and death benefit of a universal policy with the increased risk and reward that comes with a variable policy.
Term life insurance plans are the most affordable because they’re only active for a set period – either 10, 15, 20 or 30 years. Premiums for these plans – like permanent plans – are based on age and plan duration. That means longer policies and plans purchased later in life have higher premiums because they include the increased health risks associated with aging.
People typically choose a term life insurance plan because it’s a more accessible way to cover a specific life event or purchase. For example, young families may want a 30-year policy that will ensure their children are financially protected through college, while someone who is paying off a short-term debt could choose a shorter time frame.
Older adults may find that longer terms are more difficult to qualify for or afford. For example, according to NerdWallet, the most common term policy lasts 20 years and comes with $500,000 in coverage. That policy would cost a 30-year-old woman $189 per year, but would cost $8,235 per year for a 70-year-old woman. However, premium rates remain consistent, so the 30-year-old woman will still be paying the same rate when the plan expires 20 years later.
Final expense insurance is a form of whole life insurance for seniors that also builds a cash value over time. The main difference is that final expense plans offer a smaller death benefit (typically $2,000 to $35,000) to keep premiums low, while more traditional permanent life policies offer benefits of $100,000 or more.
Because it’s relatively easy to qualify for – there are no medical exams, and it’s typically available until age 85 – this type of policy is an appealing option for older adults who want to protect family from end-of-life expenses, such as funeral or medical bills.
Guaranteed final expense insurance is slightly different than the policy described above.
Though it’s easier to qualify for, guaranteed issue life insurance comes with a two- or three-year waiting period before the full benefit will be paid. If the policyholder dies during the waiting period, the insurance company pays back the premiums with interest instead of the benefit.
Applicants with serious medical issues who cannot qualify for another type of coverage may opt for this type of policy.
When it comes to navigating senior life insurance, choosing a policy isn’t the only challenge.
Insurance fraud is real, and it doesn’t just refer to criminals stealing from massive insurance companies. According to ConsumerAffairs, more than 3.5 million seniors fall prey to financial exploitation each year, with an average loss of $34,200.
Learning what to look for can be key in protecting yourself from financial scams.
One of the most common scams is called premium diversion, which is when unethical agents keep their clients’ premium payments. Agents have also been caught “fee churning” or convincing clients to change policies so they can get a commission – and while the new plan may be more expensive, it may not provide additional benefit.
Finally, one of the most troubling scams is when a dishonest agent forges a client signature to assign themselves as the beneficiary on the client’s policy.
To avoid scams like these, verify that your agent is licensed by contacting your state department of insurance, and if you pay by check, pay the insurance company directly, rather than an agent.
While the scams mentioned above are distressing, fraud isn’t limited to agents.
Ghost brokers are people who pose as agents to sell fake life insurance for seniors. They may also:
Forbes notes that the best way to protect yourself from insurance scams is to only work with licensed agents and to review your policy annually to make sure nothing has been changed without your authorization.
There may not be a trustworthy and inexpensive life insurance plan for seniors out there, but that doesn’t mean there aren’t smart and affordable options. When it comes to choosing whether or not you need life insurance and what type to get, it all comes down to your personal situation and retirement plan. Speaking to your financial advisor is the best way to assess your specific needs and the available options.
Keep reading the blog to learn more about working with a financial advisor and developing a financial plan for retirement.