The bottom line: If you’d like to provide a sense of financial support for your loved ones when you’re no longer around, life insurance could be worth the due diligence. It’s important to know how to choose the right insurance for you. Here are three mistakes to avoid when buying senior life insurance.
Mistake 1: buying the wrong type of senior life insurance
The most common types of life insurance are term life and whole life. Let’s discuss both of these so you can make the best decision for you and your family.
Term life insurance for seniors
Term life insurance gives you coverage for a set amount of time. For example, you could buy a 10-year policy. If you die during that period, your life insurance company will pay out an income tax free cash benefit. If you outlive the period, you may have the option to renew your coverage.
Pros and cons of term life insurance
- Term life insurance is generally cheaper than whole life. If you’re on a tight budget, price may be one of your primary concerns.
- The downside of term life is that you could outlive the policy, and you’ll have to review your policy or convert it to a whole life policy before the term ends.
Whole life insurance for seniors
Whole life insurance is designed to give you coverage until your death. As long as you keep your payments up to date, your insurance will continue to be active.
Although some seniors won’t have time to build equity in their plans, those that do could benefit from the opportunity to borrow some of the money that has been paid toward the plan. This is another way that whole life insurance may prove to be valuable to seniors during a family emergency.
Pros and cons of whole life insurance
- Some people may be attracted to whole life because it not only insures you but also builds a cash value. In time, you can borrow against that cash value. This option could come in handy during a family emergency.
- However, whole life can be far more expensive than term life.
- There is also a price to pay for borrowing against the policy’s cash value. Should you die before you’ve repaid your loan, your loved ones will get less than they normally would collect. They will receive what’s left after the outstanding balance of your loan and any interest is deducted.
Mistake 2: buying the wrong amount of life insurance
Let’s look at two seniors who need to buy different amounts of life insurance—Sarah and James.
Sarah has a husband and several adult children plus teenage grandchildren. She worries that her husband will struggle to pay for the upkeep of their home when she’s gone, and she also wants to have money to help with her grandkids’ college tuition. Sarah decides she needs to buy a large life insurance policy to cover these expenses.
On the other hand, James doesn’t have the same concerns as Sarah. James is a widower, and his children are grown and doing well financially. He has no grandkids. James only needs a small life insurance policy to make sure that no one has to pay for his burial expenses.
Mistake 3: not taking advantage of available additions to your plan
Many people aren’t aware that they can attach additional benefits to their life insurance plan. These add-ons are called riders.
For example, there is an accelerated death benefit rider that may allow you to receive part of your insurance’s death benefit while still alive if you’ve been diagnosed with a fatal illness. This type of rider may be helpful to your family members if they should struggle to pay for the cost of caring for you.
After your death, your loved ones would then receive your insurance plan’s death benefit minus the amount that the insurance company has already paid with the accelerated death benefit rider.
Discuss available riders with your insurance representative to find the ones that will be of value to you and your family.
Questions to ask when buying life insurance
In summary, when deciding on which insurance plan to purchase, ask yourself the following questions:
- Do I need term life or whole life insurance?
- How much of an insurance payout do I need to leave for my family?
- Which add-ons or riders are right for me and my family?
You’ll be able to make a more informed decision when you can answer the three questions above. Plus, you’ll avoid costly mistakes when buying life insurance as a senior.
We’re happy to help you answer any of your questions—contact TruStage® today.