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You may associate life insurance with younger people who are starting families and want to protect the financial future of their loved ones, especially since insurance companies tend to recommend locking in rates early. But the need for life insurance can extend well into the later stages of life. Whether you’re nearing the end of your career or enjoying retirement, it’s not too late to consider this valuable financial tool.
How Old Is Too Old?
No matter your age, it’s likely you can find a policy that will meet your needs. Insurance companies set premiums through an underwriting process that considers factors such as age, gender, lifestyle and medical history as well as the type of policy, length and amount of coverage. The younger you are when buying a policy, the lower the premium, since the risk of death during the policy period is lower. Most term life policies have an age cutoff of 65-75 years, while whole life policies are often available to older buyers anywhere from 80-85 or even 90 years of age.
What’s the Difference Between Term Life, Whole Life and Universal Life Insurance?
There are three types of life insurance: term, whole and universal life policies.
Term life: This is the simplest type of life insurance and pays a death benefit to beneficiaries should the policyholder die during the specified term. Term life policies are typically issued for 10, 15, 20 or even 30-year periods with a fixed monthly premium. Buyers aged 50 or over may find it difficult to purchase the longest-term policies.
Whole life: This a type of permanent life insurance that provides lifelong coverage and combines an investment account with an insurance policy that pays a death benefit. The investment component offers a guaranteed minimum rate of return and tax-deferred growth, and the cash value will accrue over time. Policyholders can withdraw or borrow from the cash account. Policyholders can pay premiums on a regular basis or with a single premium that covers the entire cost of the policy. The policyholders pay premiums for a specified amount of time (i.e., 10-20 years), at the end of which the policy is paid up. The fixed premiums are significantly higher than those for term life policies.
Universal life: This is another type of permanent life insurance that offers flexibility in premiums while offering a cash savings account and a death benefit. Unlike with whole life, the universal life policy does not earn a guaranteed rate. While premiums are higher than those of term life policies, they are typically flexible and lower than whole life premiums.
Why Do Older Consumers Buy Life Insurance?
There are many reasons to buy life insurance. Younger buyers may be concerned with protecting their families — should a breadwinner die, life insurance can replace their income and ensure that the family is financially secure. Death benefits can cover the mortgage, living expenses, education or any other financial obligations a family might have.
For many seniors, life insurance becomes a means to ensure their spouse, children or other dependents are not burdened with financial hardships upon their passing. Even if you’ve reached retirement and are living comfortably, life insurance can offer peace of mind by safeguarding your family’s future. The life insurance death benefit can also be used to cover funeral expenses, medical bills, estate settlement costs and other immediate expenses.
Life Insurance as Part of an Estate Plan
Life insurance is not just about immediate expenses; it also plays a critical role in estate planning. If you have outstanding debts or loans, such as a mortgage or credit card balances, life insurance proceeds can be used to settle these obligations.
Life insurance can also facilitate the smooth transfer of your estate to beneficiaries according to your wishes. It can help mitigate potential disputes over inheritances and ensure that your loved ones receive the financial resources you intended for them. In the case of substantial estates, life insurance is often a part of the estate plan to cover tax liabilities and preserve assets.
Life Insurance to Create a Charitable Legacy
Beyond providing for your immediate family, life insurance can also be used to leave a legacy or support charitable causes that are meaningful to you. You can designate beneficiaries outside of your immediate family, such as grandchildren, close friends or charitable organizations. This allows you a final opportunity to support the causes important to you.
Supplement Your Retirement Income
Life insurance can be a valuable financial tool to supplement your retirement income as well. A whole or universal life policy can be borrowed against, or even cashed in if the death benefit is no longer important to you. It can be a helpful source of additional funds should the need arise.
The Bottom Line
Ultimately, purchasing life insurance later in life is about peace of mind. Life insurance offers reassurance that your family will be taken care of and, in the case of whole and universal life policies, can offer investment benefits as well.
Whether you’re in your 50s, 60s or beyond, life insurance can be a valuable financial tool protection and security, and it’s never too late to explore your options.
Sources
National Association of Insurance Commissioners (NAIC). Life Insurance Buyer’s Guide. Accessed June 30, 2024. https://content.naic.org/consumer/life-insurance.htm
New York State Department of Financial Services. Consumer Guide to Life Insurance. Accessed June 30, 2024. https://www.dfs.ny.gov/consumers/life_insurance
Office of the Insurance Commissioner, Washington State. A Consumer’s Guide to Life Insurance. Accessed June 30, 2024. https://www.insurance.wa.gov/sites/default/files/documents/life-insurance-guide.pdf
Liberty Mutual Insurance Company. What is Life Insurance and How Does It Work? Accessed June 30, 2024. https://www.libertymutual.com/insurance-resources/life/how-does-life-insurance-work
Aflac, Average Term Life Insurance Rates. Accessed June 30, 2024 https://www.aflac.com/resources/life-insurance/term-life-insurance-rates-by-age.aspx
