Back a few years ago I was asked by an insurance agent from another company, “what is the most affordable life insurance for elderly people?” I thought for a second and replied, “it all depends on the person’s situation.”
I could tell when I made this remark the other insurance agent did not agree with me at all. In fact he proceeded to lecture me for next hour why term insurance is the only life insurance you should ever buy. In the end I still disagreed and left it at that.
The truth is one type of life insurance for the elderly is not always right for everybody, so if you’re an elderly person looking for affordable life insurance you will want to read this article as I will be discussing all the options available as well as debunking a few myths that people have gotten caught up in.
What Options Do You Have
In this section I am going to cover the different types of insurances out there and how they work. Take some time learn about these options before you get dead set on any particular one.
Term life insurance for elderly people, is usually your cheapest option available. The way it works is you are buying life insurance for a predetermined amount of time. They usually range from as little as five years to 30 years in length.
The length of time a policy last also determines the cost of the policy. In most cases a five year term policy will cost a lot less than a 30 year policy because the amount of risk the insurance company has to take on is a lot less. With longer term policies they have to take on more risk hence higher premiums.
Whole Life Insurance
A whole life insurance policy is a permanent policy the does exactly what it says, covers you for your whole life. In fact, it not only last your whole life but the premiums last your whole life as well.
These types of policies are meant to be paid on till you die. However, not all of the money you pay into this policy goes towards the cost of insurance. Some of it goes towards your cash value which earns a fixed rate of return, usually ranging from 3% to 5%.
Index Universal Life
This is a newer type of insurance that is a close cousin of the whole life policy but with some much added benefits. First, the policy is universal, which means it’s flexible. For example in a whole life policy if you would stop paying your premiums on your policy would lapse and you would lose the coverage, but in a universal life policy you could miss a payment and be OK as long as you had money in the cash value of the policy it would continue to pull money from it till it would exhaust the account.
The policy is also called an indexed universal life policy because you can invest some or even all of the money in an indexed account based on the S&P 500 minus dividends usually. In the indexed account you will never earn less than zero but there is usually a cap of 8%, which means you won’t be able to earn more than that. Each company varies their cap on the interest rate but 8% is standard for most companies.
However if you decide you don’t like the indexed option most companies also have a fixed option which earns a fixed return around 3% to 5%. With some companies you may also be able to split where you invest the money as well, you could put 50% in fixed and 50% in the indexed fund.
Variable Universal Life
Variable Universal Life Insurance, also known as VUL, is a close cousin to the index universal life policy except for a few things. First, the policy is universal and flexible just like the indexed policy.
Second, a VUL is variable and not indexed which means it is invested in the stock market just like your mutual funds and 401ks. This also means it can lose money like any other investment.
Why Term Insurance Isn’t Always The Best
With all of the benefits term Life Insurance for the elderly has it may not always be the most suitable option. It may be the most affordable life insurance for elderly people but it doesn’t necessarily mean it will do everything you want it to.
Recently I read a book by renowned author Dave Ramsey who claimed that term insurance was the only type of insurance you should buy. In fact he went on to say that you should buy a term policy and invest the difference.
To everyone who reads his book and don’t know much about insurance probably thought this was a great idea. However, let me just punch a few holes in this myth before we move on. The first issue I have with this idea is that Dave mentions in his book, The Total Money Makeover, that if you would buy a term policy at a young age a cheaper price you could save the difference and by the time you got to retirement you would have enough money saved up that you wouldn’t need the insurance anymore.
I’ve worked in the insurance industry for four and a half years and there is one thing I learned in that time, if I did not physically help that person set up an account and help them save the money, it won’t happen. You could tell them all you want but more than likely they will forget or some type of emergency will come up and they’ll spend the money any ways.
Second, if you got a 30 year term policy at the age of 30, this would mean the policies contract would expire at age 60. Now let me ask you, would there be a better chance that you would die between the ages of 30 and 60 or 60 and older?
Now there is a chance that you might die before the 30 year term policy ends but in most cases that won’t happen. You would be more likely to die at age 60 and older. This means that you paid for 30 years of nothing and a risk that did not happen. This would be like renting an apartment and not living in it.
Finally, when you past age 60 and realize you don’t have enough money in place to cover all of your expenses you realize that you need more life insurance, and that it’s going to cost you a lot more. In fact you’re also more likely to have more medical conditions at that time such as heart problems, cancer, or any other life threating illness which could deny you from getting any coverage at all.
If you’re reading this article and have fallen into anyone of the above situations my heart goes out to you.
Why I Have A Permanent Life Insurance Policy
With all the mess a term policy could cause why do I like my permanent policy? Think of it like this, if you’re reading this article you probably have some type of health insurance. If you’ve had it for some time you’ve probably used it already. You might have used it for you doctor visits, buying prescriptions, or even if you went to the emergency room. The point is you used it, so why not your life insurance?
The point I’m trying to make is that I can’t guarantee how long you’ll live, or when you’ll die but I can guarantee that you will die someday and wouldn’t it be better to leave your loved ones better off then you found them. Not with a pile of debt in their lap and not to mention going through the entire process of probate and paying estate taxes.
This is why I have a permanent policy.
In this final section I’m going to give you a few tips to help you out.
- Talk to several insurance agents and get term and permanent quotes. Getting several quotes will allow you to compare all the options. Don’t just go with the guy you’ve known for years just because you know him. You may be passing up better deals than you realize. I did this for years with my car and homeowner insurance till a neighbor stop by one day and showed me what I was missing out on.
- The cheapest policy is not always the best policy. Make sure you check the companies ratings, A++ and A+ are the best a company can get. This rating means that they are a superior company in meeting the needs of their of their client insurance obligations.
- What is the insurance for? If you don’t need it don’t get it. I’ve seen some fast talking insurance agents that could sell penguins fur coats, but it doesn’t mean you necessarily need it.
- Get only what you need. If you only need $25,000 don’t get a penny more. Insurance companies charge per thousand so if $25,000 will cover you just get that.
- Make sure it covers your needs. If someone says you need $500,000 of life insurance make sure it’s for the right reason? If you don’t have debt or the need to cover the loss of a breadwinner why do you need the insurance?
Follow the tips I have shown you above and you’ll find the best Life Insurance for elderly people. There are a lot of people out there trying to take advantage of people especially the elderly so make sure you consider all you options before you decide.
This article was recently featured on the carnival of personal finance by M is for Money.