There are several ways seniors and their families can benefit from a life insurance policy. The different types of life insurance that are now available can fill a variety of needs and provide a wide range of benefits:
- Provide cash flow to cover final expenses which can include funeral costs, medical bills, and any remaining debts such as a mortgage, auto loan or credit card bills. This helps alleviate any financial burdens for the policy owner’s family after their death.
- Provide a continued income stream for a spouse or partner after the policy owner’s death, This is particularly helpful for individuals who receive a pension without survivor benefits. A life insurance policy can help ensure financial security for their loved one.
- Create a special needs fund to ensure a dependent child or grandchild is cared for after the policy owner’s death.
- Provide cash flow for the policy owner while they are alive if they become chronically ill or need long term care. Known as living benefits, these types of policies help provide much needed funds for medical expenses and care costs.
Types of Policies
There are a variety of policies and riders on the market designed to meet the diverse life insurance needs of seniors.
Term life insurance
A term life policy guarantees the cash payout of a death benefit to the policy holder’s beneficiaries, as long as the policy is still in effect when they die. This type of policy lasts for a fixed period of time which means it could expire before the beneficiary dies. In this case, they will need to get a new policy if they want to continue coverage. These policies start with the lowest premiums, but if the beneficiary outlives the initial policy, a new policy will cost more, due to increased age.
Whole Life insurance
This is a permanent policy that provides lifelong coverage and offers a cash value growth component. Whole life policies have a fixed premium, growth rate and death benefit. There is no investment risk to the cash value. Premiums are generally higher than other types of life insurance policies.
Policy holders can access the cash value of the policy during their lifetime in two ways. The first is by taking a loan which allows policy owners to borrow cash. As long as the cash value remains higher than the loan balance, the policy will not lapse. It’s important to understand the terms for taking a loan, such as fees or interest rates, as well as the terms for repayment. The second option allows policy owners to withdraw cash without needing to repay it. This will reduce the death benefit and lead to tax consequences.
Universal Life Insurance
This is also a permanent policy, but it works differently from whole life policies. Universal life policies allow the beneficiary to adjust the premiums and death benefit to their needs over time. There are several types of universal life policies:
- Guaranteed– with this type of policy the cash value grows at a fixed rate. Funds grow at a slower rate but there is no investment risk.
- Indexed– the cash value growth of this type of policy is tied to the performance of a specific market index such as the S&P 500. These policies allow some upside growth if markets do well but also minimize downside risk.
- Variable– these policies do not lock in a fixed rate. They fluctuate with the market and are best for individuals who want maximum growth potential for their cash value and can tolerate risk.
Long Term Care Insurance
Most seniors are concerned about the cost of LTC and its impact on their retirement savings. There are several ways to protect against these high costs. A traditional LTC policy is a straightforward insurance policy for which the policy holder pays a regular premium. In return the policy will cover many of the services needed if the policy holder needs to go to a nursing home or requires the help of a caregiver in their home.
Many people don’t like these traditional policies because if they die without ever needing to use the policy’s benefits, they feel their premiums have been wasted. Some insurers now offer hybrid long term care policies that combine permanent life insurance with long term care coverage. If the policy owner dies without using their long term care benefits, their beneficiaries will receive the death benefit. These policies are more expensive and can be unaffordable for some people.
Chronic Illness Insurance
There are several ways to protect against medical expenses associated with a serious or terminal illness:
Critical Illness Insurance
These are special insurance policies that provide a lump sum payout should the policy holder suffer from certain specific critical illnesses such as cancer, heart attack or stroke. These policies pay in addition to Medicare coverage.
Policy Riders
- Accelerated death benefit- this rider can be added to a life insurance policy to allow the policy holder to receive cash advances against the death benefit in the event of being diagnosed with a terminal illness. Taking accelerated death benefits will reduce the amount of money received by beneficiaries.
- Chronic illness- this rider can be added to a life insurance policy to provide financial assistance due to an unforeseen health diagnosis. If the policy holder is unable to perform certain daily activities or has a severe cognitive impairment, the policy can help with medical expenses and long term care costs. The payout from the rider will reduce the death benefit.
Annuities
While annuities are different from life insurance policies, they also play a role in the financial security of seniors. Life insurance policies traditionally pay beneficiaries after the policy holder dies and annuities help policy holders during their lifetime, creating a guaranteed income stream for life. Annuities can help alleviate the concerns many seniors have about outliving their retirement savings.
Depending on the type of annuity purchased, the policy holder may be able to designate a beneficiary who can receive a death benefit after their death. The benefit can be the remaining value of the annuity, or a minimum amount specified in the contract.
Not all annuities automatically include a death benefit. There might also be an option to add a death benefit rider. If the policy holder dies and has received less in payments than they paid into their annuity, their beneficiary will receive at least as much as was paid into the annuity. This is also known as a “return of premium” rider.
You can educate your clients on the importance of life insurance at lifehappens.org and help bring them the peace of mind that comes from having a life insurance policy that meets their needs.
The dedicated team at PTT Financial is here to support you. Our goal is your success. Contact us today.
