Life Insurance for Seniors: It’s Not Too Late!
If you’re over the age of 60, you may be wondering whether it’s too late for you to apply for life insurance. While it is true that premium rates increase as you age, that doesn’t mean that there isn’t an affordable and appropriate solution for you. There are different types of life insurance policies available to seniors, each best suited to different situations. So, is it too late for life insurance?
After age 65, it is indeed a bit too late for life insurance to be used if intended to act as an investment. At this point, the most important feature of life insurance is how quickly it is paid after one’s passing. Life Insurance typically pays out within 2 weeks of the claim, making it extremely liquid from an estate perspective. Many other assets can be tied up in your estate while the lengthy probate process takes place. At the end of the day, speaking with an advisor about your specific situation is the most important thing you can do. They will help you determine what need you are filling with life insurance, and what product is best suited.
Let’s take a look at some of the most common scenarios for seniors wanting to purchase life insurance, and what type of policy can best suit your needs.
Final Expenses/Funeral Life Insurance
One of the more common reasons people buy life insurance is to pay for final expenses, most commonly funeral costs. In Canada, funeral costs average between $10,000 and $15,000. A great way to ease this financial burden on your loved ones is to purchase a whole life insurance policy, also known as a permanent policy. These policies don’t expire as long as required premium payments are made, so you don’t have to worry about outliving your insurance coverage. Relatively small coverage amounts of $25,000 or less can be quite affordable, even for seniors. Life insurance policies pay out quickly and tax-free. Your surviving family will be able to take care of funeral arrangements in a timely manner.
“Keep the Cottage” Life Insurance
Final income tax bills can often be larger than expected, especially if your spouse predeceases you. When you pass away, your assets can “roll over” into your surviving spouse’s ownership. However, if your spouse passes away before you, there is no one for your assets to “roll over” to. This could mean a large tax bill for your surviving loved ones. If you have assets that you’d like to pass along intact to your children, such as a cottage, a life insurance policy can help to cover those end-of-life bills. Otherwise, your loved ones may be forced to sell off your assets to pay your final income taxes. Whole life policies are best in this scenario, because the tax bills will need to be addressed after you pass away.
Leave an Inheritance
Life insurance can also be used to leave a gift, or inheritance, to your beneficiaries. This could be used to help fund your grandchildren’s education, or to help children with their mortgage. Here’s another scenario: let’s assume that you have a business that you’ll be leaving to one of your children. Your other children have no interest in the family business, but the business makes up the bulk of your estate. In order to balance out your children’s inheritance, consider how a whole life policy could be used to provide funds to those beneficiaries who won’t be taking over the business.
The best part about using life insurance to provide an inheritance is that proceeds pay out tax-free. You know your beneficiaries are getting the amount you want them to get. Again, a whole life insurance policy is best in this case, because it will never expire as long as premiums are paid.
Another use for life insurance is to give a charitable gift when you pass away. Many people choose a cause that is near and dear to them, and designate a registered charity as the beneficiary of their whole life insurance policy, ensuring that the full tax-free amount is paid to the charity. Because the charitable donation is intended to take place after you pass away, a whole life policy is best-suited here.
This is the only scenario where we recommend term life insurance for seniors. In all of the other scenarios we’ve addressed, we assume that you live a long, full life, and that you’re able to pay off most, if not all, of your debt before you pass away. However, what happens if you die before your mortgage or other loans are paid? A term policy that expires when you expect your debts to be fully paid is a good option. For example, if you have 10 years left on your mortgage, you may want to consider a 10-year term policy worth approximately the same amount that’s outstanding. If you pass away unexpectedly, your beneficiary will still be able to pay off the mortgage. The same rule applies if you have an outstanding car loan or line of credit.
Many seniors are working longer and continue to accrue debts. These debts should be factored in when determining what type, and how much life insurance you need. But what happens if, for whatever reason, you’re not able to clear your debts by the projected time? Most companies offer renewable term policies, so if you still need the coverage, you can extend the term.
So what’s the best life insurance for seniors?
As we’ve outlined above, everyone has different needs and there’s really no clear-cut answer. In most cases, we recommend whole life insurance policies for seniors. This is because you will never have to worry about outliving your coverage. However, to cover shorter-term obligations such as mortgages or loans, a term policy may be the better option. We invite you to contact us so that we can help you find the right solution for your unique situation. Is it too late for life insurance, call us, and find out! Send us a message, request a quote, or give us a call so we can get started on your personal plan!
About the Author
Jordan Richardson, B.Sc, LLQP, QAFP™
Founder - NorthWise Insurance
Jordan was born in London, Ontario, but has lived all over the province, spanning from Windsor to Sudbury. He graduated with Honours, Bachelor of Science (B.Sc.) in 2013 from the University of Waterloo, and quickly pivoted away from science and to the financial services industry. Jordan acquired his Life Licence Qualification Program (LLQP) in 2014, and more recently obtained the Qualified Associate Planner (QAFP) certification. Jordan is currently one exam away from his Certified Financial Planning (CFP) designation, and the Chartered Life Underwriter (CLU) designation. With early success in the financial service industry, Jordan quickly was thrust into management roles, specializing in team building through creating great work culture, and in digital marketing strategies. These skills were utilized in the creation of NorthWise Insurance, where the goal is geared towards an omnichannel advice platform that offers a wide range of financial products, all available digitally.
Jordan is engaged, and has two beautiful daughters. He is the Chair of the Young Professionals Association (YPA) of Sudbury, and mentors a little brother in the Big Brothers, Big Sisters Program. When Jordan isn’t working or with his family, you can find him on the golf course or playing basketball.