Life Insurance for Seniors
You may have had life insurance for many years. Most people
buy life insurance when they get married or have children because kind of
insurance is very important when someone else is counting on your income. Life
insurance can help pay a mortgage, fund a college education, or keep food on
the table for your spouse and children if you are no longer around. Life insurance can be viewed as income
replacement.
If your children are grown and living on their own and you
and your partner have retired and are living on pensions, Social Security, and
investment income, do you still need as much life insurance as you had when you
depended on that paycheck every two weeks?
Do you still need life insurance at all?
The answers to these questions will depend on your financial
situation, what expenses you expect to have over the remainder of your life,
funeral and burial costs, and any taxes or other bills that may still need to
be paid after your death.
There are several different types of life insurance, and
what you had during your working life may or may not still be right for you
after you retire. Here are the basic kinds of life insurance:
- Term Life Insurance
covers you for a set period of time, or “term.” It pays a death benefit only if you die during
that term. Term insurance usually pays the largest death benefit per premium
dollar paid, and many term policies can be renewed at the end of the term. However, the premiums will go up each time
you renew because you are older.
- Whole Life Insurance
covers you for as long as you live, and you usually pay the same premium for as
long as you live. These policies develop cash value
and loan value, so if you stop paying the premium, you can continue the policy for
a limited period of time for the same face amount or continue the policy until
its original maturity date for a reduced face amount. You may also borrow
against the policy cash value in the form of a policy loan or surrender the
policy for cash.
- Endowment Insurance
pays a sum or income if you live to a certain age, and if you die before that
age, the policy pays a death benefit to your beneficiary.
- Universal Life Insurance
takes the premiums you pay, minus expense charges, and deposits them into an
account that earns interest. This type of policy also
develops cash and loan value. If you stop paying premiums, or if premium
payments are too low, coverage will continue as long as the cash value is
sufficient to cover the deduction made from the account value each month. You
may also borrow against the policy for cash value in the form of a policy loan
or surrender the policy for cash.
- Variable Life Insurance
is a type of insurance in which the death benefit and cash value depend upon
the performance of the investment accounts you select for allocation of your
premiums. This type of policy also develops cash and loan value. If you
stop paying premiums, or if premium payments are too low, coverage will
continue as long as the cash value is sufficient to cover the deduction made
from the account value each month.
While you were working, raising a family, saving for your
children’s college, and paying a mortgage, you and your spouse may have each
needed enough life insurance to replace your take-home pay for at least two or
three years so your family could maintain its lifestyle if you were gone. If
most of these obligations are gone, this may be a good time to examine whether
you still need the life insurance you currently have.
This isn’t a decision to be made lightly. You should discuss
this with your spouse or partner, your children or other beneficiaries, a
trusted financial adviser, and your insurance professional.
Always make sure you have enough money to pay for any costs
that will be around after you die, such as a funeral, burial, taxes, and any
debts. You don’t want to leave these to your loved ones.
Keep in mind that some life insurance policies can be used
to help pay medical expenses while you are alive, but this will reduce or eliminate
the death benefit.
More information and some good questions to consider are
available from the National Association of Insurance Commissioners.
For a brochure on life insurance in general, go to www.insurance.pa.gov and click on Life
under Top Resources.