Life Insurance for Seniors: Is the Coverage Worth the Cost?

Life insurance provides cash to your beneficiaries after you die to help support them. But what about life insurance for seniors? Does it make sense?

In some situations, it can make sense to spend thousands of dollars a year on a life insurance policy after you retire. Some seniors use life insurance as an estate planning tool, a way to pass along inheritance to heirs or to cover debt and funeral expenses.

But for others, purchasing a new policy doesn’t make financial sense.

Here’s what you should consider.

Can You Buy Life Insurance If You’re Over 65?

People over age 65 can buy life insurance. However, the premiums will be higher and it may be more difficult to pass medical underwriting requirements.

A specific type of life insurance policy — known as guaranteed issue life — is marketed to seniors as an affordable way to cover final expenses. But these types of policies come with restrictions and drawbacks. (More on that later).

Your health and age are two big factors insurance companies use to determine the cost of your premiums.

The older you are, the more expensive it is to purchase life insurance coverage. Likewise, the more chronic health conditions you have, the less likely you are to get a policy — or pay dearly for it.

Do You Need Life Insurance If You’re Over 65?

Not everyone needs life insurance after they retire. Generally, if no one depends on you financially, or your heirs can inherit other sources of income after you pass away, life insurance isn’t necessary.

But there also are a few cases when buying life insurance can help protect your family from financial hardship after you’re gone.

“You may not want medical debt or other end-of-life issues being claimed against your estate, especially if you don’t have a high net worth,” said Curtis Crossland, a certified financial planner at Suttle Crossland Wealth Advisors in Scottsdale, Arizona.

An estate is the legal term for all the assets you own when you die. After you pass away, the money in your estate is used to cover your outstanding debts.

Debts must be paid before your heirs receive any money. So if you accumulate more debt than you have assets, your children or spouse might be left with nothing.

“If you’re healthy and can qualify for life insurance, you might purchase it as a hedge against racking up huge medical bills before you pass away,” Crossland told The Penny Hoarder.

To be clear though, just because you die with a ton of debt doesn’t necessarily mean your survivors are stuck with the bill.

By law, family members do not usually have to pay the debts of a deceased relative from their own money, according to the Federal Trade Commission.

But your loved one could still be on the hook if they cosigned a loan with you. For example, if you and your spouse cosigned student loans for a child, your partner is responsible for paying off that debt after you die.

Possible Benefits of Life Insurance for Seniors

Even if your family isn’t drowning in debt after you’re gone, an insurance policy can pay out cash to help them live better.

Life insurance can help ensure your spouse can continue making mortgage payments, cover your funeral costs or provide financial support to an adult child with special needs.

For the wealthy, purchasing a life insurance policy in retirement can be a great way to pass along a sizable inheritance, fulfill philanthropic wishes or cover estate taxes.

Consider all the sources of income your spouse or children can access after you pass away, like bank accounts, retirement accounts, real estate and other investments.

For example, while Social Security pays a survivor benefit, it won’t be as much as Social Security paid when you were alive.

Likewise, if your spouse would lose most or all of your pension income after you die, life insurance can fill that gap.

How Much Does Life Insurance Cost for People 65 and Older?

Life insurance gets more expensive with every year you wait to purchase a policy. Simply put, the older you are, the higher your life insurance premiums will be.

Here are some examples.

Term Life Insurance Cost

A 30-year-old female in average health purchasing a 20-year term life insurance policy with a $500,000 death benefit can expect to pay about $26 a month in premiums, according to data from PolicyGenius, an online insurance marketplace. 

However, a 65-year-old female in average health could expect to pay an average of $387 a month in premiums for a 20-year $500,000 term life insurance policy.

Term life insurance policies tend to be cheaper than permanent life policies. A big drawback? Term policies only last a specific amount of time.

If you purchase a 20-year policy when you’re 65, there’s a decent chance your policy could expire before you die. That means all the money you paid in premiums for 20 years doesn’t lead to a payout for your heirs.

Whole Life Insurance Cost

Whole life insurance is much more expensive, in part, because your coverage never expires. 

But the cost can be staggering. 

A 30-year-old female in average health can expect to pay an average of $408 a month for a whole life insurance policy worth $500,000, according to PolicyGenius. 

For a 50-year-old female in average health, that number jumps to a whopping $920 a month for a whole life insurance policy worth $500,000.

What Else Impacts Life Insurance Rates?

Your age isn’t the only thing that determines a policy’s cost.

Other factors that impact the cost of life insurance include:

• The amount of coverage: A policy worth $200,000 will cost less than a policy worth $500,000.
• The type of policy: Term-life policies tend to have lower premiums than permanent life insurance policies, like whole or universal life.
• Your health: If you’re a smoker or have chronic health conditions, expect higher premiums.
• Your gender: Life insurance premiums are generally lower for females than for males.

Types of Life Insurance: Term Life and Permanent Life

Life insurance policies come in two broad types: term life and permanent life.

Here’s some more information about the different types of life insurance.

Term Life Insurance

Term life insurance typically lasts 10, 20 or 30 years. Longer lasting policies charge higher monthly premiums.

Once the term ends, your coverage expires and you no longer need to pay premiums.

Most of these policies require a medical exam.

If you already have a term life insurance policy that’s set to expire, you may be able to convert it to a permanent life policy and keep your coverage in force.

You should call your insurer and ask what conversion options are available, said Courtney Wilson, president and founder of Fortify Insurance Group, an independent broker agency.

“Most policies have a conversion privilege of some sort,” Wilson told The Penny Hoarder. “Some of them expire when you turn 65 or 70, others only last the first seven to 10 years of the policy unless you buy an extension.”

Bypassing a medical exam is a big benefit of converting a term life policy into permanent coverage, according to Wilson.

“You’re protecting your insurability,” he said. “If you got preferred health status when you bought your term life policy and then you convert your policy in the future, you get preferred rates — regardless of your health status when you convert it.”

Permanent Life Insurance

Permanent life insurance never expires so long as premiums are paid. These policies can build up a cash value you can borrow against later.

Some offer accelerated death benefits, which lets you access the money before you die if you’re diagnosed with a terminal illness or need cash to pay for long-term care expenses.

There are several types of permanent life insurance, including whole, universal and guaranteed life.

Permanent life insurance policies tend to cost much more than term life policies — anywhere from five to 10 times more.

How to Avoid Medical Underwriting for Life Insurance

Medical underwriting can be a major obstacle for older adults looking to purchase life insurance.

All life insurance products involve some degree of underwriting to get a picture of your background and determine how risky it is to insure you.

Traditional policies require you to undergo a full medical exam, including a blood and urine test. The insurance company may also contact your general practitioner to get a copy of your medical records.

Simplified issue and guaranteed issue life insurance offer a way to bypass medical exams — but you’ll pay for the privilege.

“You’re going to be a lot more limited with what you can get as an older client if you don’t want to go through the full underwriting process,” Wilson said.

Simplified Issue Life Insurance

Simplified issue life insurance doesn’t require lab work or a medical exam. The underwriting process might look like answering a few basic questions instead of undergoing blood work, a physical and everything else.

Coverage amounts tend to be smaller, usually no more than $100,000.

Premiums will be more expensive though. After all, the insurance company doesn’t know as much about your health or life expectancy, so you’re riskier to insure.

More insurers are offering an accelerated underwriting process, which collects more information from applicants and third-party sources than a simplified issue policy.

Policies with accelerated underwriting often offer competitive death benefits at affordable rates — and with shorter waiting periods than policies with traditional underwriting.

Unfortunately, accelerated underwriting is often only available to people 60 years or younger, Wilson said.

Guaranteed Issue Life Insurance

Guaranteed issue life insurance goes by many names. Final expense insurance, burial insurance, funeral insurance — it’s marketed differently, but they all share a few common traits.

• You can’t be denied guaranteed issue life insurance.
• You don’t need to undergo a medical exam.
• Coverage amounts tend to be small. (Think a maximum of $25,000).
• Policies are usually sold to people between the ages of 50 and 80.
• The death benefit may not pay out for the first two to three years after purchasing your policy.

Guaranteed issue is usually a permanent life insurance policy with a death benefit between $5,000 and $25,000.

That’s why it’s often called funeral insurance. The payout won’t cover much beyond final expenses and maybe some medical costs.

You can’t be turned down for this type of policy — which is why it’s marketed to seniors, who tend to have more chronic health conditions.

But there’s a catch: If you pass away within the first two or three years after purchasing your policy, your beneficiaries won’t receive the full death benefit.

Instead, if you die during this period, your heirs will usually receive a refund of the premiums you paid, plus interest.

“You’ll want to understand the claims payout record for the company you’re looking to buy from,” Crossland said. “Policies for elders that guarantee coverage no matter your health situation may have incredibly restrictive language.”

Expensive Long-Term Cost

Low monthly premiums often make final expense insurance for seniors seem more attractive than other policies.

But since the policy value is so small, you may end up shelling out more money than the policy is actually worth.

Here’s an example.

Lincoln Heritage Life Insurance offers guaranteed issue policies to seniors. According to its website, a 65-year-old female can expect to pay $41 to $64 a month for a $10,000 final expense insurance policy.

Compared to the cost of a $500,000 20-year term life insurance policy ($387 a month) this feels like a bargain.

But consider this.

If you pay $50 a month for the policy, that’s $600 a year. In less than 17 years, when you’re age 82, you’ll have paid more money to the insurance company than the policy is actually worth.

Unless serious health issues disqualify you from better coverage, check out other policy types first. An independent insurance agent or financial advisor can help you shop for the best quote among multiple companies.

Pros and Cons of Life Insurance for Seniors

Buying life insurance in retirement is a personal decision. What makes sense for one person may not be the best move for someone else.

Before you buy a policy, weigh the pros and cons.

Pros

• Helps cover expenses after you pass away: Proceeds from a life insurance death benefit can help cover funeral costs, medical bills and probate court fees after you die.
• Assists with long-term care costs: Some life insurance policies feature an accelerated rider, which lets you access the policy’s value to pay for long-term care expenses or chronic illness costs, like cancer treatment.
• Replaces your income: If your spouse relies on your income to pay the mortgage or other important debts, life insurance can make sense.

Cons

• Cost: It costs more to purchase life insurance at 65 than it does at 35. If you’re on a fixed income, a high-priced policy may be out of reach, or your money may be better spent elsewhere.
• Medical underwriting: Chronic health conditions make it more difficult to get affordable coverage when you’re older. You might struggle to pass a medical exam or be denied for a policy.
• Restrictions: Guaranteed life insurance policies come with restrictions. Generally, if you die in the first two or three years, your beneficiaries won’t receive the full death benefit. Other permanent life insurance policies impose restrictions on how and when you can access the cash value component of your policy.

How to Buy Life Insurance for Seniors

Many of the best life insurance companies sell policies for people in their 60s, 70s and even 80s.

Many insurers can provide you with a basic quote if you fill out a form on their website. You’ll need to follow up with a representative or agent to get a more accurate estimate of your cost and coverage options.

Shop around for the best life insurance quotes. You’ll want to compare the death benefit and monthly premiums of each policy to ensure you’re getting what you need.

Ask each life insurance company about policy details and restrictions, including which causes of death aren’t covered and what happens if you fall behind on premium payments.

Don’t lie about your health status or medical history either. It might be tempting to fib if you’re in poor health but you’ll be committing insurance fraud.

If you’re caught, the insurer can deny your application. That information might also be passed along to the Medical Information Bureau, a company that life insurance companies use to look at the health history of potential customers. That can make getting coverage from another insurance company more difficult, if not impossible.

Finally, if the insurer finds out you lied after you pass away, they can adjust the death benefit your family receives, Wilson said.

Experts recommend meeting with an independent insurance agent, a certified financial planner or an estate planning attorney to see if purchasing life insurance makes sense for you and your family.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. She focuses on retirement, life insurance, investing and taxes.