Generally, many people think of life insurance as a “peace of mind” option. It’s a means to provide dependents, such as a spouse and children, with financial support after the primary on the policy is deceased.
That said, there are many different types of life insurance policies that are used for a variety of financial planning strategies, including retirement, tax-adavantaged wealth building, and estate transfers. While most people begin to pay into life insurance at a younger age, if you are over 70, it may still make sense to purchase a life insurance policy. In fact, depending on your goals and situation, a life policy may be a pretty helpful addition to your overall financial strategy.
Let’s get into some important things to consider if you are thinking of buying life insurance at 70 or older.
Life Insurance Options Over 70
It’s not hard to secure life insurance coverage for all of your golden years. Working with a knowledgeable agent can be especially beneficial. They can help identify what’s important to you and guide you through all of the steps. And if your agent is an independent professional, they can go to multiple insurance carriers to find the best coverage at the most affordable rates.
With that said, understanding different life insurance options can be tricky – especially if this is your first time in the life market. So, here’s a quick overview of different types of life insurance potentially available to you:
Term Life Insurance
One of the most economic options, term life insurance covers a specific period. Typically coverage lasts between 10-30 years and will pay out a benefit to the beneficiary, or beneficiaries, on your contract. Term coverage is a “pure protection” play. There’s no cash value component in this type of life insurance.
While term life insurance can be more affordable option overall, that’s not necessarily the case, past age 70, with all carriers. A big number of the major life insurance companies, some of which you probably know, actually stop offering term coverage after age 70. In fact, some of them even don’t offer term life insurance at competitive rates after age 50.
Because it lacks a cash value component, term life insurance can’t be used for wealth-building or income accumulation purposes. Additionally, if you outlive the term period, no money is returned from your premiums. And at the same time, insurance companies may try limit the term you can purchase, depending on your age. For example, some insurance carriers cease offering 20-year coverage once someone reaches age 70 and over.
As for health and care related concerns, term life insurance does give some benefits. Most term life contracts come with benefits for terminal illness, in which someone has an anticipated lifespan of 24 months or less. However, most insurance carriers don’t offer other accelerated benefits on term policies, but a few do. Working with an independent agent can help identify those contracts that do.
Guaranteed Universal Life Insurance
Guaranteed universal life insurance functions similarly to term life insurance. Like term like, it doesn’t build any cash value. However, unlike term insurance it isn’t tied to a specific number of years. Rather, its coverage is provided up to a certain age. For example, this can last up to age 90, 95 or even 100.
A few reasons why people buy guaranteed universal life insurance are:
- Pension maximization
- Leaving an inheritance
- Estate planning
This type of insurance is paid for with fixed premiums. It provides a guaranteed payout to your successors, up until the age it provides coverage. Premiums tend to be higher with guaranteed universal life coverage than they do with term coverage.
One downside with this coverage is timing of premium payments. Because this type of life contract maintains guaranteed level premiums, your premiums must be paid on time. A missed or late premium payment disrupts the flow, which could potentially jeopardize the policy. You may be left with a policy that no longer has a guaranteed premium.
Whole Life Insurance
An alternative to term and guaranteed universal, whole life insurance does come with a cash value component. Comparatively to its term and guaranteed universal counterparts, it can be fairly costly for individuals over 70. That said, it is a way to build wealth or, in the case of retirees, protect and prepare for a wealth transfer.
Typically, whole life insurance will involve monthly premiums over a lifetime or a specific term. Normally these premiums will be higher than those of term life insurance. Part of the premium goes towards the cash value, or a contract component that earns interest. If you so choose, you can borrow against this amount. Whole life insurance also comes with management fees, unlike term insurance.
Many people considering whole life insurance at this stage are thinking about liquidity. They may have a business, a farm, real estate holdings, or other assets they wish to pass to loved ones. These assets may have outstanding debts, payments, or other financial interests that will have to be quickly settled upon estate transfer. So long as life insurance proceeds aren’t included as part of your estate, whole life can be an effective vehicle for maximizing your estate.
If using whole life insurance for estate planning or wealth transfer goals, be prudent. It’s recommended that you work with a knowledgeable, independent agent who knows these policies and structure one according to your needs and goals.
Index Universal Life Insurance
Index universal life insurance is a type of permanent insurance, like whole life. It, too, has a cash value component. Cash value growth can be linked to an index, like the S&P 500 price index. While this may offer more growth potential for your cash value, the growth opportunities can come with limits, like caps. You will also need to pay consistent premiums into the policy, especially while the cash value grows.
Like with other permanent policies, index universal life insurance can be an efficient vehicle for wealth transfers. Many people considering it at this age are thinking of generational wealth passing. Or it may be for post-work life milestones that are business-related. An example? Indexed universal life insurance can be used for purposes such as funding business buy-sell agreements.
Like with other life insurance products, be sure to work with an experienced agent who can help you find options that are right for you.
Life Insurance Premiums
If you are thinking about life insurance in general over age 70, here’s an important thing to consider. The cost of life insurance increases greatly the older you are. This is because the insurance company is taking on more risk as people age.
At the same time, most life insurance options require you to be in good health in order to qualify. That will be another important factor if you are considering life insurance as part of your retirement financial planning. Your “insurability,” as actuarily decided by the insurance company, will be based on a number of variables, including:
- Height and weight
- Family history
- Smoker or non-smoker status
- Health status
- Whether you participate in “risky” hobbies like scuba driving
If You’re Thinking about Life Insurance for Wealth Transfer
You may consider having an irrevocable trust purchase the policy. In this trust setup, you surrender your estate to your beneficiaries, meaning that you will no longer have access to the given estate. But it won’t be taxed after your death upon transfer to your beneficiaries. Consult with legal and tax professionals for more information.
When it comes to purchasing life insurance after 70, there are many benefits and restrictions to consider. Ask yourself what your financial goals are — for example, whether you are looking to ensure financial stability and leave an estate after your death.
At the same time, it is also important to consider your financial liquidity and the other retirement funds that are available to you. Consider any decisions in the scope of your entire retirement configuration, such as your retirement portfolio and accounts. Know their tax implications and how a life insurance policy may work in tandem with them.
In general, it’s a good idea to shop around and understand the variety of options available to you. Working with a knowledgeable financial professional can greatly help you. If you are ready for personal guidance with your life insurance research, use our “Find a Financial Professional” section to connect with someone. And call us at 877-476-9723 for a personal referral, if you need one.