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Life Insurance Considerations for Seniors

Life Insurance Considerations for Seniors

Whether you are retired or approaching retirement, life insurance is an essential subject to consider. While many seniors may think life insurance is unnecessary, there are many ways life insurance can be valuable.

In this article, we will consider what life insurance is, why it is necessary, the different types, and the factors to consider when getting one.

What is Life Insurance?

Life insurance is a contract in which the policyholder pays a stipulated premium in exchange for which the insurance company pays a lump sum upon the policyholder's death. The lump sum is a death benefit paid to the beneficiaries in the insurance policy.

Why Life Insurance is Essential for Seniors

Here are several reasons why life insurance is useful for seniors:

Cover Funeral Expenses

This is one of the primary reasons many people take out life insurance. Recent reports put the average funeral costs in the U.S between $7,000 and $10,000. No doubt, with such high costs, your funeral might become a substantial financial burden for your grieving family. You can, however, tackle this problem by getting life insurance to offset some funeral expenses.

Secure Dependents Financial Future

For whatever reason, you might be taking care of one or several dependents as a senior. This could result from late parenthood, raising grandchildren, or caring for a child with a disability. In any of these scenarios, getting life insurance is an effective way of ensuring that your dependents are financially comfortable after your passing. The lump sum for your life insurance would substitute your income for your dependents, helping them cover living, education, and medical expenses.

Cover Debt

If you have considerable outstanding loans, it is advisable to get life insurance to support surviving family members in clearing out your debt. This is particularly essential if you have health conditions that might result in substantial medical bills that your survivors may inherit.

Maximize Inheritance

Life insurance is also a great way to ensure a significant inheritance is left for your survivors. Since life insurance death benefits are not subject to taxation for the beneficiaries, they can constitute a tax-free gift to children, grandchildren, and other relatives and friends.

Types of Life Insurance

There are different types of life insurance, each designed to meet varying sets of needs. Primarily, however, there are two forms of life insurance; term life insurance and permanent life insurance.

Term Life Insurance

If you are after affordability, term life insurance might be your best option. Term life insurance typically provides coverage for a specified period. The length of insurance could be anything from 10 years up to 30 years. Generally, premium payments remain constant throughout the policy length. Typically, beneficiaries can claim life insurance and receive the death benefit lump sum if the insured dies before the term of the insurance expires.

It is worth noting that this type of life insurance is usually renewable after it expires. Similarly, some term life insurance policies are convertible. This means the policyholder can convert the policy to permanent life insurance.

Permanent Life Insurance

This is a more expensive policy option for life insurance. Permanent life insurance, as the name suggests, continues until death. A permanent life insurance policy remains active except if you stop paying premiums or deliberately terminate the insurance.

Generally, a permanent life insurance policy has a cash value component. You may borrow some of this cash value or withdraw it over time to handle expenses. Similarly, if you terminate the insurance, you typically pay a surrender charge but receive the remaining cash value.

Here are some of the common varieties of permanent life insurance:

Whole life insurance: This type of life insurance accumulates cash value that can be borrowed. In addition, some whole life insurance policies provide dividends.

Universal life insurance: This is a more flexible option for permanent life insurance. Universal life insurance may provide flexible premiums that can be adjusted over time.

Burial insurance: As the name suggests, the policy generally covers funeral costs. Hence, it is smaller in scale and provides a small death benefit compared to other policies.

Factors to Consider When Getting Life Insurance

Coverage

The life insurance coverage you require depends on the expenses you hope to cover. Determining the right coverage for you will, therefore, require an estimation of all the expenses of your beneficiaries that you want to offset. This could include mortgage payments, living expenses, and college costs over multiple years.

Policy Type

As already discussed, there are several life policies. Thus, it is vital to choose one that fits your needs. You can start by choosing between a term and permanent life insurance policy. The former is an excellent option if affordability is your priority. However, if you hope to benefit from the cash value, you must go for permanent life insurance.

Cost

Cost is undoubtedly one of the primary factors to consider when deciding to get life insurance. Some variables determine the cost of your policy. For instance, being older, seniors would likely pay more than their younger counterparts, who are deemed to have a more negligible risk of death. Similarly, your health and lifestyle are also relevant factors as the insurer considers them to determine your life expectancy. Your life insurance cost is also largely determined by your policy type.

Final Thoughts

It is vital that seniors seriously consider getting life insurance. Depending on your circumstances, getting life insurance can be the best way to ensure your loved ones are well supported even after you pass away.

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