Many people think that life insurance is a great way to insulate yourself and your loved ones from risk when you have significant long-term financial obligations - and they're right. However, as obligations such as paying off a mortgage, saving for a child's education, replacing necessary income and so on diminish with age, many older people may think they no longer need life insurance, but that's often just not the case.
Part of the problem that leads to older people going without life insurance coverage is that these previous obligations are no longer a pressing need, according to PolicyGenius. As such, they may think about other ways to handle their money. For instance, many older people live on smaller, fixed incomes than what they had decades ago, and the cost of life insurance for older people is understandably far more expensive. That can lead them to make the decision to go without, given the other constraints on their budgets.
However, the need for coverage many actually face doesn't go away with age, especially if they have a spouse or other loved ones who rely on their financial help, the report said. Even small amounts of coverage to help pay for final expenses or medical bills accrued over the last years of life can go a long way for many families. And as with anything else, prices rise the longer one waits for coverage; often by as much as 8-10% per year.
In some cases, older people may think that they are still leaving their loved ones financially insulated if they have money saved in other places, such as a retirement account, but that might not be as reliable a vehicle as they think, according to U.S. News & World Report. Simply put, if a beneficiary inherits a large sum of money from a sizable retirement account, they will have to cash it out over the course of several years, and that can lead to large annual tax bills that cut into the benefit significantly.
Life insurance benefits, which are not taxable in the vast majority of cases, help offset those added tax expenses from retirement account payouts, the publication said. It should also be noted that life coverage may also include living benefits that help offset potentially sizable obligations that arise if the insured is diagnosed with a grave or terminal illness, or needs to receive long-term care.
Meanwhile, workers may also still have group coverage through a former job - even years after retirement - and that's another important vehicle for them to examine, according to Government Executive. While the financial benefits from such a payout will likely be relatively small compared with individual coverage, it's nonetheless an added layer of protection that they should keep if they have the option available to them. It may not be enough, based on their actual needs, but every little bit helps; allowing such coverage to lapse would likely be a mistake because of how inexpensive it is going forward, even for someone on a smaller, fixed income.
Understanding cash value
For those who have been carrying whole life insurance for decades, the cash value of their policy is also something they will certainly need to keep in mind as they age, Smart Asset notes. Such permanent coverage can lapse even after one missed payment in some cases, negating the years of hard work they put into building that cash value so that it could be tapped. Even if financial constraints do arise, it's important for boomers to have plans in place to either keep funding that coverage for later or cash out when necessary.
The need to fully understand the value product features may be especially true with universal life coverage, which may give policyholders wiggle room in certain instances (i.e. they may be able to pay less some months than others) but with the understanding that the value of their coverage can change with the whims of the stock market, the report said. While many boomers have no doubt seen long-term gains, the recent stock market slowdown surrounding fears over the coronavirus should prove illustrative when it comes to the exposure they may face - and the necessity of planning for a number of possible eventualities as it relates to their life insurance policies.
People may also need to do more to consider the ideal time to begin withdrawing from their Social Security benefits to maximize their financial standings, the site advised.
For all these reasons and more, life insurers would be wise to improve outreach beyond younger Americans, who certainly have a coverage gap they need to address. Distributors should also make sure that they do a better job of maintaining the relationships they built over the course of decades with older people, so that they are fully prepared for whatever financial issues they encounter in their golden years.