Life insurance is particularly helpful as a safety net when you’re raising a family. But what can you do if you’re older and want life insurance?
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The senior dilemma around term life insurance
One of our readers named Brad wrote in to Ask Clark with the following question:
Is there any place for a very healthy male of 73 to find term insurance? I looked online, but no success. Thanks.
Well, as Brad discovered, many insurers won’t write a term life insurance policy once you’re over 65.
We’ll talk about why, but first, let’s take a step back.
What exactly is term life insurance?
The “term” in term life insurance refers to how long you buy a policy for; typically that’s 20 or 30 years.
Money expert Clark Howard favors level term life insurance, a specific type of term life insurance, where you pay one fixed premium for the life of the policy and that premium never goes up.
The purpose of a term life policy is to replace your income for dependents should you die prematurely.
If a term life policy is not “level,” then it’s likely annual renewable term (ART).
An ART policy covers you from year to year. At the end of the year, you can renew the ART policy for another 365 days — usually at a slightly higher premium.
So those are the two flavors that term life comes in: annual renewable term and level term.
Why senior citizens aren’t likely to be offered term life
Unfortunately, when you get to be over 65, insurers are typically only interested in writing whole life policies for you, according to AARP.
That’s because chances are there’s not what’s called “an insurable need” for a term life policy.
Remember, you get insurance for replacement of income to support your dependents in the event of your death. With our original poster being 73, it’s less likely there are dependents to support to begin with.
Meanwhile, whole life policies typically add an investment component into the insurance equation, and there’s no limit on how long the term can be. That’s where the name “whole life” comes from; you could in theory have a policy cover you from cradle to grave.
But according to Clark Howard, whole life isn’t ideal for a lot of people.
"It's only a good choice if you are ultra-high income earner — earning about $400,000 annually. If that's you, you can benefit from some tax advantages that come with a whole life policy," Clark says.
Longevity insurance may be an alternative
An alternative to term life insurance for seniors may be something called longevity insurance, which doesn't start paying a living benefit until you hit 85.
The best time to buy longevity insurance is when you retire, although our reader may still be able to do so at 73. The reality is these policies won’t pay out for him for another 12 years — and insurers are using actuarial tables to bet that most people who buy a policy won’t make it that long.
“The idea is that with a longevity policy in place, you could plan to blow through all the cash in your retirement plan through age 84,” Clark Howard says. “Because the minute you turn 85, you get a check every month for as long as you live.”
Longevity insurance — which goes by a variety of names but is widely known by insurance agents as "the policy that it doesn't pay out until age 85" — is similar to a a life annuity (also known as an immediate payout annuity).
The most common way to buy longevity insurance is in $100,000 increments. The money you put down generates far more income each month than you could on your own.
