Senior Life Insurance

Protecting your loved ones by choosing Senior life insurance depends on numerous factors, not only the insured person’s age. People over 70, for example, may be challenged to find life insurance that fits within their budget. Therefore, it is essential to plan for your end of life expenses in a timely manner.

Insurance for seniors is not needed for everyone. Some people may not need it if their children are independent, if there are retirement savings, or if the person doesn’t have outstanding debts. Still, many people choose a senior life insurance plan merely to cover the expenses of their funeral, which are considerable. This plan is called burial or funeral insurance, and usually features a small death benefit between $5,000 and $25,000.1 In 2019, the median cost of a funeral stood at $9,135.2

Finally, life insurance can serve as a form of inheritance and can also be used for charity donations. You can learn more about SBLI’s term life insurance here.

 

Types of Senior Life Insurance

There are various senior life insurance plans available. The choice greatly depends on the person’s health condition, age, coverage amount, and designated premiums. Among the most popular choices are the plans that come without a medical exam or health questions, the so-called guaranteed acceptance life insurance.* However, because this insurance type doesn’t include a medical exam, the rates can be quite expensive.

*Please note, guaranteed acceptance is the underwriting criteria and can apply to both term and whole life plans.

Guaranteed Acceptance Life Insurance

Guaranteed Acceptance life insurance rates are based on age, gender and coverage amount. For example, a guaranteed acceptance life insurance policy with a death benefit of $20,000 costs, on average, $156 per month for a woman aged 70 and $349 a month for a woman aged 80, as opposed to a whole life insurance policy that costs $103 and $194 per month, respectively.3

Guaranteed acceptance life insurance is typically chosen by seniors with health issues and may be the only solution for these people. As such, it is the very last resort for people with no other options.  However, it provides peace of mind that your family is covered in terms of paying for your funeral and other end of life expenses, and premiums are usually fixed for the life of the policy.

Because the insurance company doesn’t know much about the insured person, guaranteed acceptance life insurance plans, as a rule, come with a couple of strict rules:

  1. Maximum death benefits (Coverage amounts) are usually quite low and typically stand around $25,000.4
  2. Graded death benefits are meant to ensure that if the insured person dies within the first two or three years of the policy, due to any natural cause except for an accident, the beneficiary will stand to receive only a refund of the premiums and interest. The amount of the interests varies and is usually between 10% and 30%.5 If the insured person dies in an accident, the full coverage amount will be paid to the beneficiary.

 

Whole Life Insurance

Similar to other insurance policies, Whole life insurance guarantees that the premiums and coverage amount will remain unchanged over time. The difference is that the policy accrues a cash value which Beneficiaries stand to gain with a minimum rate specified if the policy is “cashed out” prior to the covered person’s death.  In addition, the policy owner can often borrow against this cash value if needed and then effectively pay themselves back.** Due to these benefits, whole life insurance can be quite expensive and usually requires a medical exam.

This type of insurance is a good choice if one wants to ensure that beneficiaries will get a substantial payout regardless of how long the insured person lives. As long as the premiums are being paid, there is no term length to the policy.

What is typical for whole life insurance is that part of the premiums accumulates in a cash value account. The more premiums one pays, the greater the cash value. The actual growth rate varies from insurer to insurer, but at some point, if the policy was bought timely, it will exceed the amount of the premiums paid and oftentimes the insured no longer has to pay premiums.

The majority of whole life policies have a guaranteed return rate at a low percentage, usually 1% or 2%.6 There’s another option that includes a non-guaranteed return rate that is based on dividends. These rates usually stand at approximately 4% to 6% per annum.7

Finally, the cash value can be withdrawn or used as a tax-free loan (it can be paid back with interest). If a withdrawal is made, no taxes are applicable as long as the withdrawal is less in value than the premiums that have already been paid. Outstanding withdrawals and loans reduce the amount of the death benefit if the insured person passes away before paying them back.

With this type of insurance, attention should be paid to the following factors:

  1. Whole life insurance is valid until the death of the insured person
  2. The great majority of whole life insurance policies pay out only the death benefit notwithstanding the cash value, which reverts to the insurance company after the death of the insured person
  3. The whole life insurance policies that pay out both the cash value and the death benefit to beneficiaries come with considerably higher premiums

Whole life insurance is guaranteed to never expire as long as the premiums are being paid. What makes it stand out is that premiums are fixed and guaranteed to remain fixed. This allows for a better cost calculation and also for better planning.

It also comes with a cash value that accumulates over time (a portion of the premiums is being used for this purpose). The insured person is at liberty to borrow from it whenever needed, which is to say that this insurance type provides lifelong protection against any unforeseen expenses.

One type of whole life insurance that may be particularly relevant to seniors is final expense whole life. It provides the benefits of whole life – fixed premiums, guaranteed death benefit, and guaranteed cash value growth, but has been designed to help cover funeral expense needs.* SBLI’s Cherish Life final expense insurance provides these benefits but only requires a few health questions to be answered.

*Full coverage amount may only be paid if death is accidental in the first three years, depending on qualification.

 

Term Life Insurance

Term life insurance stipulates that if the insured person dies within the duration of the policy, the insurer stands to pay a death benefit to beneficiaries. The two main choices with this insurance type are the term and the amount.

Term life insurance typically comes with a fixed annual rate and are fully underwritten. The catch is that if the insured person doesn’t renew the policy (typically at a higher rate, as these rise with age), the policy will expire. There are no refunds whatsoever. Due to that, many people are in doubt when deciding on the duration of the policy. Term life insurance is usually available in lengths from 10 to 30 years,8 and is designed to replace income if the insured passes away during the prime of their career and top earning years.

 

Other Insurance Types

On top of the above-mentioned insurance choices, there are also a couple of other options, such as universal life insurance and simplified issue life insurance.

Because medical conditions can often pose an issue when it comes to senior life insurance, it is crucial that the person looking for policy research options and/or work closely with a life insurance agent to be able to choose the best available option for them.

There are no general rules. It all depends on the insured person’s medical history, their age/gender, the amount of insurance they are looking for and the conditions of the insurance policy. Check your SBLI insurance options today!


**Borrowing from the policy’s cash value will reduce the available death benefit
1 Caring.com, The Best Burial Insurance of 2020.
2 NFDA 2019 General Price List Survey. National Funeral Directors Association. Brookfield, WI
3 Forbes.com, Pros and Cons of Guaranteed Issue Life Insurance.
4 PolicyGenius.com, Guaranteed Issue Life Insurance.
5 Forbes.com, Pros and Cons of Guaranteed Issue Life Insurance.
6 Forbes.com, Forbes Guide to Whole Life Insurance.
7 Forbes.com, Forbes Guide to Whole Life Insurance.
8 Investopedia.com, Term Life Insurance.
Policy Form: 18-P-WL, 19-P-FEWL, and B-56 series. Rider Form Series: 19-R-CaGCLTI, 19-R-VAB.