Buying term life insurance in your 20s and 30s is simple. It’s cheap, underwriting is quick, and will provide you sufficient protection when you’re starting a family. But what about when you’re older – say, in your 50s or 60s? Is term insurance still worth it?
Let’s look at it objectively.
If you’re 55 years old today, you may not have young children to protect anymore. So the purpose of your life insurance may simply be to provide for burial expenses and/or to provide a lasting financial legacy for the next generation(s).
If you are looking at buying a 20-year policy, it will “expire” when you’re 75 years old. Statistically speaking, most Americans live until their early-mid 80s. So that potentially leaves you with a 10+ year gap where you’re not insured.
What that means is that you’ll either have to: A) be uninsured for the last 10+ years of life, or B) try to take out another policy when you’re 75 years old. Let’s look at both scenarios.
In Scenario A, you’ve paid into a policy for 20 years that leaves you uninsured at age 75 – and you’re still alive and kicking. Sure, the insurance has provided coverage for the interim, but was it really worth all that money spent if you expected to live past age 75 anyway? That’s up to you to decide, but for me personally, the answer is no.
In Scenario B, you’re trying to apply for a new policy at age 75. Here are a few obstacles you may run into:
1. You may not be able to obtain a 20-year policy. Many insurers will not issue you a term policy because that would insure you until age 95, when statistically, you will die within that time frame. You may be able to get a 10-year policy, but I can assure you, it will be dramatically more expensive than your previous policy.
2. You cannot get insured. Unfortunately, the health of many Americans deteriorates substantially in their 60s and 70s. Not only can this drive up the cost of your premiums dramatically, but it may result in denial of coverage.
Now, before you think all hope is lost – there is a “Hail Mary” option called final expense insurance. It will provide benefits usually to a maximum of $40,000-$50,000. But dollar-for-dollar, it’s more expensive than traditional term insurance or permanent insurance that you obtain with good health at a younger age.
So here’s the bottom line: if you’re creeping into your 50s or beyond, there are some heavy considerations to make before buying a term insurance policy. The alternative is to purchase a permanent insurance policy (such as whole life or a universal life policy) while you still have your health and your youth. It will be more expensive than a term insurance policy, but it will stretch well beyond your 70s and 80s and you won’t find yourself uninsured and uninsurable.
You will have to really think about why you’re buying life insurance before selecting a policy. Perhaps you really do only want temporary coverage through your 60s and a term policy will be the best fit, but if you want coverage beyond that, there will be more factors to consider. A trusted advisor can help you weigh the pros and cons of each type of insurance product.