Life Insurance For People Over 60 – The two oldest types of life insurance—term and whole life—remain among the most popular. Whole life is a form of permanent life insurance that lasts your entire life (as long as you pay the policy premium). It also accumulates cash value that you can withdraw or borrow as you live. On the other hand, term insurance lasts only for a few years (term) and does not provide any cash value.
In addition to whole and term life, several other variations have arisen such as universal life (UL). Today, the best insurance companies offer more complex products to reach a wider range of customers.
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But getting back to basics, what’s the difference between term and whole life and which one is better for your needs? These two types of policies are the most popular and easiest to understand. We will break down the main features that distinguish this insurance mainstay.
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Term life insurance is probably the easiest to understand because it is straightforward insurance without the bells and whistles. The only reason to buy a term policy is if you die while it is in effect because of the promise of a death benefit for your beneficiary.
As the name suggests, this stripped-down form of insurance is good only for a fixed term, be it five years, 20 years or 30 years. After that, the policy expires.
Because of these two features — simplicity and limited duration — term policies are also often the cheapest by a wide margin. If you just want the ability to protect your family after your death from a life insurance policy, term insurance is best if you can afford it. Because term policies are usually more affordable and can last until your child reaches adulthood, they can be an option for single parents who may want an extra safety net.
The average 30-year-old man can get a 20-year term policy with a $500,000 death benefit for $27.42 per month. Because of her generally long life expectancy, the average 30-year-old woman could purchase the same policy for just $21.74.
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Of course, various factors will change those prices. For example, a larger death benefit or a longer length of coverage will definitely increase the premium. Also, most policies require a medical exam, so any health complications can raise your rate even higher than standard.
As term insurance expires, you may find yourself spending all that money on something other than peace of mind. Also, you cannot use your investment in term insurance to build wealth or save taxes.
Whole life is a form of permanent life insurance, which differs from term insurance in two main ways. For one, it never ends as long as you continue to pay your premium. It also provides some “cash value” in addition to the death benefit, which can be a source of funds for future needs.
Most whole life policies are “level premium,” meaning you pay the same monthly rate for the term of the policy. That premium is split two ways. A portion of your payment goes toward the insurance component, while the other portion helps build your cash value, which increases over time.
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Many providers offer a guaranteed interest rate (often 1% to 2% annually), although some companies sell “participating” policies, which pay non-guaranteed dividends that can increase your total return.
Initially, the whole life premium amount is higher than the cost of insurance. As you get older, however, this reverses, and the price drops below a typical term policy for someone your age. This is known as “front-loading” your policy.
At a later date, you can borrow or withdraw your cash value amount, which grows on a tax-deferred basis, to pay for expenses like your child’s college tuition or home renovations. In this sense, it is a more flexible financial instrument than a term policy. Loans from your policy are tax-free, although you will have to pay income tax on investment gains from any withdrawals.
Unfortunately, death benefit and cash value are not entirely separate properties. If you take a loan from your policy, your death benefit will be reduced by a corresponding amount if you do not repay it. If you take out a $50,000 loan, for example, your beneficiaries will receive $50,000 less, plus any outstanding interest if the loan is still outstanding.
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The main disadvantage of whole life insurance is that it is more expensive than a term policy – by a considerable margin. On average, permanent policies cost five to 15 times more than term coverage with the same death benefit. For many consumers, relatively high prices make it difficult to comply with payments.
Another potential drawback of whole life insurance is its complexity. With a term policy, for example, you can stop paying if you no longer need or can’t afford the insurance.
However, depending on your carrier, whole life policyholders may face a surrender charge of up to 10% of the cash value if they decide to walk away from their policy. Usually, this charge diminishes as the years go by until it finally disappears.
So what type of coverage is best for your family? If term coverage is all you can afford, the answer is simple—basic protection is better than no protection at all.
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For those who can afford the significantly higher premiums that come with a whole life policy, the question is a bit tougher. If your goal is to save for retirement, many fee-based (ie, non-commission-earning) financial advisors recommend turning to 401(k)s and Individual Retirement Accounts (IRAs) first. After maxing out those contributions, a cash value policy may be a better choice for some people than a fully taxable investment account.
Some consumers have unique financial needs that a whole life policy can help them manage more effectively. For example, parents with disabled children may also want to consider whole life insurance, as it covers your entire lifetime. As long as you continue to pay the premium, you know that your children will receive the death benefit from your policy.
It can also be a valuable tool in succession planning for small businesses. As part of a buy-sell agreement, business partners sometimes take out whole life insurance for each owner, so that the remaining partners can buy the deceased’s equity share in the event of their passing.
Regardless of the type of insurance policy, the premium will be lower (and healthier) the older you are when you buy it.
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This is an age-old question in the life insurance business. The answer is that it depends on your needs and desires. If you only need life insurance for a relatively short period of time (such as when you have young children to raise), term may be better because the premiums are more affordable. If you need permanent coverage that lasts your entire life, whole life is the option. Whole life also offers many living benefits from its accumulation of cash value, which reduces its actual cost over time.
Life insurance companies or their agents earn commissions from selling policies. This is usually between 60%-100% of the first year’s premium amount and a series of small ongoing payments each year (perhaps 2% to 10% of that year’s premium).
Common term life policies come in 10-, 15-, 20-, 25- or 30-year terms. A small number of insurance companies will also offer 35- and 40-year policies.
Whole life insurance definitely offers more financial flexibility with its cash value component. However, because permanent policies are more complex and expensive, many consumers follow the old principle, “buy the term and invest the rest.”
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Authors are required to use primary sources to support their work. It includes white papers, government data, original reporting and interviews with industry experts. We also cite original research from other reputable publishers where appropriate. You can learn more about the standards we adopt to produce accurate, unbiased content in our editorial policy. Do your financial circumstances allow for all of your personal finances to be taken care of in the event of your death?
Are you able to afford your own funeral or will it be a financial burden on your loved ones? Will your assets comfortably pay any bills such as credit card balances and personal loans?
If the answer is no, you may want to consider life insurance cover which provides peace of mind if you die as your family will receive a lump sum payment to pay off any outstanding debt. From this article, you will learn how life insurance for people over 60 works and how it relates to your situation.
Providers typically offer over 60 life insurance under the more common 50 to 80 age band. These policies are commonly known as life insurance for over 50 plans and are meant to provide peace of mind for you and your loved ones in case of your death. Financial security from small payments is often used to pay for funerals
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