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Life insurance as a senior: what you need to know

After retirement, it’s natural to consider your legacy, and what you’re leaving for the next generation. It’s also natural to examine your budget, your current expenses, and how you might pay for senior care if you need it. Life insurance intersects with many aspects of a senior’s life, so it’s important to have a basic understanding of how it works.

Here are the bare-bones basics of life insurance–what seniors need to know. 

There are different types of life insurance
The basic process life insurance is simple:  Policyholders pay a monthly premium, and upon their deaths, the beneficiary receives a award. Yet, within that framework, there are numerous products with all sorts of variations. All of these varied life insurance plans fall into two main categories:

Term life insurance: Term life insurance covers the policyholders for a specified amount of time–often ten years. Policyholders here are still living when the term ends have find a new plan if they wish to remain insured.

Permanent life insurance: These are lifetime plans. They pay a death benefit to the beneficiary whenever the policyholder dies, now matter how old. 

Neither type of plan is necessarily “better”. Often, life insurance is purchased in order to protect a family in the event a breadwinner were to pass away. Most people eventually graduate from the role of provider, and no longer need to insure an income stream. For these people, a term life insurance plan could make sense.

On the other hand, permanent life insurance may make sense for those who are concerned that their next of kin could have trouble paying for funeral expenses, or who may be passing on an estate saddled with debt. Those who cannot risk outliving their plans get permanent life insurance.

It might not make sense to get new life insurance
Naturally, life insurance costs increase with age. But they increase rapidly after 50. Premium costs for a 65-year-old can be nearly four times that of a 50-year-old. For this reason, seniors who currently don’t have life insurance probably shouldn’t get insured unless it is to meet a very specific need, such paying for burial costs or leftover debt. Before deciding to get insurance, seniors should explore whether their current assets would be enough to cover funeral expenses and debts. Seniors who do make the decision to get insured should find a policy with benefits that cover projected expenses for these discrete costs, and nothing more.

You may be able to cash-in life insurance to pay for senior care
People who already have a permanent life insurance policy have the right to cash-in it in. (Term life insurance policies generally do not have a cash value.) When you cash-in a life insurance policy, you surrender the deaf benefit and receive a lump sum payment of the cash value of the policy. The older the policy, the higher the cash value will be. Depending on age of the policy, the cash value can be a small fraction of the benefit amount, or nearly equal to the benefit amount. Selling a life insurance policy can be a viable option people whose policies outgrew their usefulness when their children became financially self-supporting. However, seniors should not cash-in a policy unless they absolutely need the funds. This most commonly occurs when a senior needs to raise extra funds to pay for senior care.

The bottom line for seniors is to have a very good reason before buying a new plan or cashing-in a current plan. Seniors should also consider speaking with an impartial financial planner before making any important life insurance decision.