Does life insurance for seniors make sense?
After I read this question myself, my immediate answer was “no way”.
I don’t think life insurance for seniors makes much sense.
Maybe that was narrow-minded and too blunt. So, I’m willing to listen.
I know for our financial situation, decades from now, I’m trying to avoid paying life insurance premiums.
This is because my wife and I hope we can self-insure at some point.
Today’s post will highlight why life insurance may make sense for some seniors.
I’d like you to be the judge whether these situations might apply to you or the people you care for, and create a dialogue about it via my comments section below. As always, I want to hear what you have to say.
My Take on Life Insurance
I like to think of life insurance this way: you are transferring the risk of a catastrophic financial loss to someone else, namely the insurance company. Life insurance is a risk management tool.
I see it as a hedge against an uncertain yet potentially disastrous financial mess. If an individual can self-insure, this is a good thing and maybe the best-case scenario. Such an individual would avoid paying premiums to the insurance carrier selling the insurance. This is what I’d like to do as I get older but there are no guarantees I will be in this financial position.
What I want (to do) versus what actually happens are two different things
My goal is to self-insure but if I can do this remains to be seen.
A good example for self-insurance is a retired couple or an individual with a dependable stream of income, probably a diverse income stream from a variety of sources (company pension plan, investment income and government benefits). This couple or individual senior would also carry little to no debt, have no major liabilities or no dependents. Their assets would be able to manage estate costs (tax liabilities) or left directly to a beneficiary to provide additional amounts to a particular person. That’s ideal.
What seniors are good candidates for life insurance?
Fans of this site LSM Insurance mentioned a few things – even if there will be no substantial financial loss or outstanding liabilities experienced upon death, some seniors may still want to leave a death benefit to their beneficiaries.
Life insurance can also be a good way to leave some money to a beloved charity. Besides, as a society we’re living longer. Insurance companies in recent years have adjusted for this need; many insurance companies will now issue coverage up to age 85.
Also, a senior running their business may have a higher net worth and may wish to offset the tax liabilities associated with their business using life insurance.
Here are other situations when life insurance for seniors could make sense:
- Couples or individuals who remain in their peak earning years, with no intention to retire in their 60s or 70s or beyond.
- Couples who will experience a catastrophic income loss if a spouse dies.
- Couples or individuals with very large estates.
As you have probably guessed by now, life insurance is not really for you, it’s for others.
That said, I’m not personally convinced many seniors need life insurance. Save your money, get out of debt and have assets to live from in retirement. Keep it simple seniors.
Do your homework and talk to a professional including any independent broker to understand your needs before diving into a life insurance product.
What’s your take on insurance for seniors?
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Had Term insurance during my working years, but as soon as I retired I dropped it. For the $500,000 coverage they wanted $7,900 per year.
Our only income is CPP & OAS so we’ve had to invest to generate income, which fortunately we have managed. I owe much of our success to finding the Connolly Report and following the DG strategy he recommends.
I don’t expect we will out live our investments, due to our growing income each year and don’t see any advantage to pay for insurance.
For those with medical issues insurance may be a consideration assuming it’s not overly expensive.
Tom Connolly’s report is very well done, is he taking new subscribers yet?
I don’t expect to outlive our investments either. I can see senior couples or individuals with large estates to need life insurance but it really depends on your personal situation. I agree with your statement: those with medical issues insurance may be a consideration – which is why insurance needs to be looked at with the big picture in mind.
Thanks for the comment Henry.
Mark
Mark, you’ve said…”Carrying debt to the grave could carry unexpected tax bills, and so insurance can provide portfolio protection as just one example.”
Could you please explain how debt triggers tax on death? I’m puzzled.
Hi Eileen,
As you likely know..life insurance and creditor life insurance can provide a death benefit to cover repayment of a specific debt like a mortgage, line of credit, personal loan, or credit card balances. If you or your spouse dies, the insurance pays off the total balance.
I probably could have worded this differently and stated “Carrying debt to the grave can bring debt issues to the forefront…” or “Death can give rise to unexpected financial obligations…”.
Also, life insurance proceeds can be paid to your estate to cover estate costs (tax liabilities) or left directly to a beneficiary to provide additional amounts to a particular person. These proceeds are paid tax-free.
Lastly, death can trigger tax liabilities as referenced above. Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs) as well as your stock portfolio, possibly some business interests, and real estate may all be sources of potential tax liabilities.
I didn’t mean to confuse you and acknowledge I could have improved the wording, thanks for the catch.
Good question Eileen. I have seen a number of cases where family cottages or businesses or put in jeopardy because inadequate estate planning. Life Insurance can help offset these costs. The most common policy for this purpose is a Joint Last to Die policy which pays out the proceeds on the death of the second spouse.which is when the tax is generally owed
This is where I see life insurance being very helpful, for estate planning purposes.
I guess that we are what you call self insured.
We did have several with profits life policies while working, but once retirement was possible, they were traded in for an annuity that bridged the gap until pensions started paying.
No mortgage, no debts and (I hope) enough savings. Why would we want an additional payout?
I think seniors without a mortgage, no debt and enough (meaning lots) of savings can self-insure but I’ve often wondered if that’s a very small percentage of seniors. Thanks for sharing your perspective Richard.
There is no reason to have life insurance other than to leave an inheritance to your kids or to insure that your spouse will not be “poor”, That is if you pass away first.
Other than that you should have enough saved up to meet your everyday needs (very hard to plan for).
The expression in French is, a literal translation, “The safe does not follow the hearst” or in other words you can not take it with you.
My case: I have two life insuarance policies – paid up. One that my parents bought for me $1K – hey that was a lot of money back in the 50’s. and another $10K. If that is not enough to get me in the ground then the kids may have to buy a shovel.
I read once that a retirement well lived is when the last cheque you write bounces. You will have spent all your savings.
While my kids were young I had life insurance. I was divorced and it was left to my estate with the executors having juristiction as to the utilization of the funds. Once they were independent or close to it I let go of the policy. I had converted my policy to a term policy to save on payments several years previously and every ten years the payment was revised to take in to account my age. Needless to say the payments increased and it was becoming non-sensical to keep the policy once the kids were independent.
My “insurance” poicy consists of my RRSP’s and TFSA and any non registered funds. The bank tells me I am OK to 90. It may not be enough as I have told my doctor (at yearly physical) that I wanted to live to 200. I have revised that since seeing the film NOAH and reading up about him. Apparently he sired his family when he was 300. I may have to revise my life expectancy outlook – LOL
At any rate I figure in my case that I do not need life insurance as long as there is enough to get me a permanent resting place.
Great comment. Ricardo, like you, I’m going with the self-insure route if I can but I think insurance for some seniors makes great sense. Hopefully as you say, I hope to have enough saved up to meet our everyday needs but I can appreciate not everyone thinks this way or may have saved enough. Also, on the flipside, some seniors may want to leave some sort of legacy and insurance can be a vehicle for that within the estate. All this to say, everything needs to be looked at, all viable options should be on the table.
We hope to spend most of our assets in retirement Ricardo. I figure I’m only here once 🙂
Some seniors may be able to self-insure by having built up enough assets when they reach retirement age. Some seniors may still need to work part-time or full-time into their late 60s and 70s to support their standard of living. If that is the case, their income is still relied upon by their spouses as much as it was during the earlier stages of life. Life insurance would still be required in this scenario.
Another policy that seniors should look into is long-term care insurance. One of the major drains of assets in retirement are health care costs, which you can bet will continue to rise at a breakneck pace as more and more boomers retire. Long-term care insurance pays out a weekly or monthly benefit much like disability insurance, with the qualifying event being the loss of independence. For policies in Canada, as long as you’re unable to perform 2 of the 6 activities of daily living (usually the case if you require home care or facility care), you will qualify for the payout of benefits.
Thanks for the detailed comments Brian.
I’m going to try and self insure but long-term care is another issue altogether I think. I suspect healthcare assets will be totally drained in another 20-30 years with our aging population. I think folks should, for the most part, focus on saving enough now for long-term care assistance in their working years vs. waiting until their senior years to rely on long-term care funding. I think this could be dangerous, financially, if you wait until you need the money. Thoughts?
I think it depends on what insurance you have – term vs. whole. Often life insurance becomes insanely expensive as you get older, making it sort of pointless; if you could put that money that you are spending on life insurance away, and sort of self-insure, you may be better off.
Life insurance premiums definitely spike as you get older, but some seniors should still look at it I think, depending on their estate plan, liabilities and dependents.
good morning and happy canada day! i’m not sure what you mean by “self insure”. my dad took out a $7,500. policy to pay for funeral expenses when he was 67. he passed away at age 89 having paid over $11,000. in premiums. i think i will pass on life insurance!
Self insure meaning having enough assets to cover all liabilities AND income protection for my wife should I pass on. Basically, I will buy insurance to a point whereby I don’t need it anymore, which is possibly less than 10 years into my late-40s.
Happy Canada Day in advance Gary!
This sounds like a Simplified Issue or Guaranteed Issue policy with no medical questions and either no or a short series of health questions. These plans are more expensive than Traditional Fully Underwritten plans,
Thanks for writing in Chantal.