How to choose a life insurance policy when you’re over 55
It can be difficult to find a life insurance policy for yourself when you’re over 55. As you age, premiums on such policies increase and it can seem like the effort you’re putting in is not worth the headache. It doesn’t have to be difficult though. If you’re over 55 and are looking for tips on the best life insurance policy, you’ll find help below.
Why do I need life insurance?
This is one of those things that doesn’t really benefit you; it benefits your loved ones. When you’re gone, the expenses of your funeral and burial could become a burden on those who are left behind. Losing you will be difficult enough.
More than funeral costs though, a life insurance policy can also help with owed debts, college tuition, and replacing the income your family has lost due to your passing. It is meant to make your family’s lives a little easier.
How does my age affect my options?
The biggest factor when it comes to life insurance and age is the rate; the older you are, the higher your rates. For a 20-year term $250,000 policy, a 25-year-old man would pay about $12.53 according to Investopedia. For the same policy, a 60-year-old man could expect to pay $106.25. If you finished out that term and wanted to take out another, the cost would increase even more.
Why is there such a significant difference? Well, it has to do with life expectancy.
Life expectancy is a statistical prediction for how long someone will live. This is based on race, existing health, sex, occupation, family medical history, and lifestyle choices such as whether you smoke and what kinds of hobbies you have. If you’re 25 years old, you’re likely to live longer and pay into the insurance more than someone who is 60. If your life expectancy is lower because you are older, it may mean that the insurance has to pay out before you’ve put much into it. That means you are high-risk. Insurance companies offset that by charging you more.
If you’re over 55 and have decided it’s time to look for life insurance, your options will be limited. For example, some companies will only provide a 20-year-term policy for those up to 70 years old. After that, you’ll be limited to shorter terms.
Furthermore, the older you are means that you generally require more medical testing to qualify for a policy. Even a 45-year-old will have to undergo more tests than a 44-year-old. Because of the stringent testing necessary for many policies, there is a higher likelihood that additional health issues will come to light, which will mean higher premiums. The application process, called underwriting, can sometimes feel long and invasive.
What is the application process like?
Whether you work with an insurance company directly, an insurance broker, or use an insurance comparison website, you are likely to have to undergo plenty of questioning. There are three types of underwriting that will dictate what this process looks like.
- Full underwriting: fill out a questionnaire, take a medical exam, and allow insurers to gather third-party information about you. This process can take up to 60 days, but usually results in a low quote because they know your entire history.
- Accelerated underwriting: fill out a questionnaire and allow access to third-party information just like in full underwriting. It often doesn’t require a medical exam. Accelerated underwriting is expectedly quicker because you can apply online and give permission for the gathering of third-party data instantly. The cost is similar to full underwriting as well but usually has a coverage limit of $1 million.
- Simplified issue: answer a few questions, allow data collection from third-party sources, but skip the medical exam. This tends to be the easiest type to work with. Insurers make immediate decisions on acceptance or rejection, but the rates tend to be higher because they have less information about you.
If you do find that you are required to have a medical exam, it’s important to be the healthiest version of yourself. Forbes Advisor suggests limiting salt and high-cholesterol foods along with over-the-counter medications for 24 hours before the exam. 12 hours before the exam, you should avoid alcohol and any intense exercise; you may also need to stop or limit food and water intake. 1 hour before, avoid caffeine and nicotine, and drink some water if you’re able. This will just help reduce any “small” issues that insurers may use to boost their rates for you.
What kind of life insurance is there?
When you start looking into the world of life insurance, you’ll find that there is a lot to consider. One is which type is right for you. There are several, and it is important to weigh the pros and cons of each.
Term Life Insurance
What it is: Policies that typically cover a set amount of 5, 10, 15, 20, 25, or 30 years.
Pros: They are more affordable with quotes being far lower than other policies. This can be a great option that covers the years your family may depend on you most.
Cons: If you die outside of the years outlined in your policy, the insurer will not pay. You’ll also find that longer terms result in higher quotes. However, these are still lower than with other life insurance types.
Permanent Life Insurance
What it is: Policies with lifelong coverage.
Pros: They generally cover you from the start of your policy until your death, regardless of how many years pass.
Cons: They are more confusing than term life policies and can be split into further subtypes. Quotes on permanent policies are also much higher than term life quotes.
Whole Life Insurance
What it is: A type of permanent policy that has a cash value feature in addition to lifelong coverage.
Pros: As you pay into the policy, part of the premiums will grow in a cash value account that can be accessed at any time. It’s untaxed until you take out any amount that includes investment gains. It’s a great way for your cash to continue its growth. You can also earn insurance company dividends with some plans. Plus, the premiums remain static over time.
Cons: It’s the most expensive type of life insurance because of the added cash value and other perks.
Universal Life Insurance
What it is: Split into guaranteed, indexed, and variable universal life insurance, this type has adjustable premiums and benefits, and varying rates of return.
Pros: Gives you a little more flexibility with premiums and where you’re investing cash values. Guaranteed has constant premiums and death benefits; indexed allows you to adjust your premiums and benefits; variable offers adjustable premiums and choices on investment for your cash value.
Cons: There are further subtypes that make choosing the right life insurance for you quite confusing. Guaranteed has little cash value; indexed has cash value that is tied to a market index, which means that the rate of return can vary and that there are very high fees; variable has rates of return based on which investments you choose. It can all be fairly complicated.
Guaranteed Issue Life Insurance
What it is: A policy geared towards older adults who want to provide their family with help for final expenses.
Pros: As long as you meet the age requirements, you can’t be turned down. No medical exam required!
Cons: Coverage is usually capped at $25,000 or less, and the rate is higher compared with other policies because applicants are always considered high-risk.
Which type is right for me?
Which type of life insurance you choose really comes down to your lifestyle and your purpose for the insurance. If you want to cover your children or grandchildren’s college expenses, should you pass during this time, term life may work just fine. If, however, you’re wanting larger sums and funeral expenses covered, permanent life insurance may be better.
Whatever your decision, if you’re investing in life insurance, even over 55 and with higher premiums, you’ll have peace of mind for your loved ones for after you’re gone.