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Life Insurance May Be Necessary for Some Seniors

Life insurance works like a financial safety net for your loved ones. It helps protect them from financial disaster should something happen to you. With so many types of life insurance, it can be hard to decide which one is best for you. Term life policies cover you for a set period of time. Whole life, universal and variable life insurance policies offer permanent coverage. The type of policy you need will depend on your financial situation.

Find out now: How Much Life Insurance Do I Need?

Once you’re retired, you may decide that you no longer need life insurance since your children are gone or you’ve built up a substantial nest egg. Some senior citizens, however, still need life insurance. Before you do away with your life insurance policy, read over a few things to consider.

How Long You Plan to Work

Thanks to the collapse of the housing market and the economic fallout that followed, more older Americans are working longer. If you plan to keep working past retirement age, you might want to hang on to your life insurance policy. Doing so could help provide your spouse and children with protection against the potential loss of income.

Instead of needing a job for income, some seniors choose to continue working based on their desire to stay active. If you fall into this category, take stock of your assets, debts and employer’s insurance (if any). Whether or not you need to keep your coverage depends on your calculations and situation. That way you won’t end up paying for an additional policy when you don’t need to. If you have coverage through your job and the loss of your income wouldn’t financially devastate your loved ones, you could do without.

How Independent Your Loved Ones Are

Life Insurance May Be Necessary for Some Seniors

The ultimate goal of life insurance is most often to provide security for those you leave behind. When you’re debating whether to drop your coverage, it’s important to think about how your family’s needs have changed since you originally purchased the policy. For example, maybe now your kids are all grown up and established in their own careers. And maybe you successfully saved enough cash in the bank that could help your spouse pay the bills. In cases like those, you probably won’t need more life insurance.

On the other hand, if your kids are still relatively young or your spouse requires long-term medical care, you may want to hang on to your policy. You also might want to consider your Social Security or pension benefits. Will they provide a sufficient supplement to your spouse’s income after you’re gone? Keeping even a small policy can help to make up the difference.

Your Estate Tax Situation

If you have a sizable estate, your loved ones could face a big surprise tax bill when you pass away. As of 2017, individual estates valued at $5.49 million or more are subject to federal estate tax. The amount doubles to $10.98 million for married couples who own assets jointly.

True, that’s a generous amount of assets you can exempt. However, you may still have to worry about state inheritance and estate taxes depending on where you live. Buying a life insurance policy to cover any anticipated taxes can help ease the financial burden.

Costs vs. Benefits

Paying for life insurance may seem like an unnecessary strain on your budget. This may ring especially true if you expect your income to dip in retirement. Or perhaps you expect to fork over more money towards increased medical bills. If you originally purchased a term life policy, you may find yourself paying much higher premiums if you renew coverage later in life.

Life Insurance for People Over 50

Life Insurance May Be Necessary for Some Seniors

If you’ve never had life insurance before, there are some policies that you can still qualify for. Senior life insurance plans are generally geared toward elderly individuals between the ages of 50 and 75. They can cost more than other forms of life insurance and only provide limited coverage. However, they may be a last resort for seniors who aren’t eligible for other plans.

For one, graded benefit whole life insurance could provide a solid option for the elderly. These policies usually don’t require applicants to answer any questions about their health or medical history. These plans can’t offer more than $25,000 worth of coverage, though. If the insured person does not die within a few years, the beneficiaries probably won’t receive any benefits or a return of premium.

Similarly, final expense insurance provides permanent coverage without an exam (in most cases). Then you can borrow money from your policy to cover different expenses and take advantage of cash value.

If you’re fortunate enough to find an insurance company that offers term life insurance for seniors, you may be able to secure a cheaper policy that provides more coverage. However, if your family only wants to have enough money socked away to take care of your funeral costs, a pre-need life policy might be the only insurance you actually need.

Guaranteed Acceptance Life Insurance

Another type of life insurance for seniors is guaranteed life insurance. Older people can get coverage for this policy too without going through a medical examination. Unless you currently have a life-threatening condition, you’ll likely qualify for a small amount of money.

Guaranteed life insurance policy payouts tend to run small. This doesn’t make them too desirable when you consider their high cost. Plus, depending on the insurance company, if you die sooner rather than later, your family might not get anything from you other than the premiums you already paid for.

The Takeaway

Ultimately, you need to weigh the cost of life insurance against your actual and expected financial needs. If you know that your spouse will need money later on, you may have to adjust your budget to keep the coverage. Be sure to look at everything, including living expenses, debts, estate taxes, Social Security or pension benefits and life expectancy. Being as thorough as possible will give you a better idea of whether you can wisely toss your insurance.

Photo credit: © Murillo, © Ristovski, ©

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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