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How senior life insurance needs change as you age

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Life insurance for seniors not only differs from young adulthood but also within your senior years

It’s a fact of life. As you age, your financial situation changes. You may need to downsize your home after your kids leave the nest, or you may have more disposable income after you pay your child’s final tuition bill. But one thing you probably haven’t considered is how your life insurance needs will change as you get older. The fact is, different types of life insurance fit your needs at various stages of your life, and you and your family will be well prepared if you consider these factors.

Life insurance in early adulthood

As a young adult starting a family, you’ll generally choose Term Life or Whole Life insurance to protect your family if you pass away unexpectedly, said Marguerita Cheng, certified financial planner and owner of Blue Ocean Global Wealth.

Term Life insurance

“Term is like renting,” Cheng said. “Term insurance is for a specific amount of time.”

If you don’t pass away during the term of the agreement, you lose all benefits and cash value. But Term Life insurance premiums are less expensive for a greater death benefit, Cheng said.

“For example, someone 37 years old in good health may pay $37 per month for a $750,000 death benefit, compared to a Whole Life policy, where that same person would pay $225 per month for a $225,000 benefit,” Cheng said.

Whole Life insurance

Whole Life insurance is just what its name implies, Cheng says. The policy and the death benefits last as long as you pay your premiums, or your whole life.

Whole Life insurance premiums are higher than Term Life payments, but Whole Life has a cash value, and you don’t need to die to withdraw the money. You can borrow against your balance, but the loan must be paid off to receive full death benefits.

“In a sense, it’s a forced savings plan,” Cheng said.

Life insurance for seniors

Different issues come into play when you’re choosing life insurance in your senior years. For example, when you no longer have debts or dependents, you can switch to a type of plan that only covers your needs.

Life insurance for seniors over 60

Not all 60-year-olds’ insurance needs are the same. The type of life insurance you choose will strongly depend on your current finances.

“If you don’t have your mortgage paid off, but it’ll be paid off in 10 years, you may want to buy a 10-year Term policy,” Cheng said. “When both spouses are alive, you may need a (Whole Life) death benefit to take care of the surviving spouse.”

If you have a large number of debts and don’t already have a Whole Life insurance policy, Cheng says Term Life insurance is probably the best way to go at this point in your life.

Life insurance for seniors over 70 and 80

“At this point, you’re looking to cover your funeral expenses,” Cheng said. “A funeral can cost between $15,000 and $30,000. You must ask yourself, ‘Do I have the means to cover these costs?’ If you don’t and you don’t want to burden your loved ones, there are two ways you can alleviate these costs.”

Preneed Funeral insurance

Preneed insurance is used to fund a funeral service agreement between you and a funeral home. You decide every element you want included in your funeral service, which includes everything from the casket to flowers to transportation for the family. The funeral home director totals the costs, and that amount is the basis for your Preneed insurance plan. You can either pay the amount in one installment or through monthly premiums. Upon your death, the funds are used to pay the funeral home for your funeral.

Final Expense insurance

Final Expense insurance doesn’t remove the task of planning the funeral, but it can alleviate the burden on your family of covering funeral costs — and an array of other expenses. Your family can decide how to dispense the money, which can be used for unpaid bills, medical expenses, and even college tuition for children or grandchildren. If they choose to use it for your funeral, they can make arrangements with any funeral home. Final Expense insurance has two types of plans — Simplified Issue and Guaranteed Issue. Simplified Issue has an underwriting process and approval depends on your answers to a few health questions. Death benefits are a level benefit. Guaranteed Issue usually has higher premiums than Simplified Issue, but it doesn’t have an underwriting process, and approval is guaranteed. Death benefits have a modified benefit.

If you have no big health concerns, a Simplified Issue plan may meet your needs. However, if you have chronic or serious health conditions, a Guaranteed Issue plan could be a better fit. To find the best final expense insurance for you, talk to your insurance agent or a certified financial planner.

Why senior life insurance changes matter

You may be tempted to delay re-evaluating your senior life insurance needs because discussing final wishes and funeral benefits is difficult.

“As we age, our needs are going to evolve,” Cheng said. “But just as we took care of our loved ones all our lives, we must be sure not to burden them with big expenses when we leave this earth.”

Photo credit: iStock

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