One of the most important things to decide when you’re buying life insurance is how long you need and want the life insurance to last. At Over50LifeInsure.com we know often times the first thought is that you want to have the life insurance in force until the day you eventually pass away.
Depending upon your objectives and your need for life insurance coverage you may or may not need to have a life insurance policy in force on the day you pass away.
Here’s an example. Let’s assume you’re 60 years old and that you’re in excellent health. Presumably you can get the best rates that the insurance companies offer.
The best rates that insurance companies offer are typically called either Preferred Plus or Super Preferred. The name of the best class health rating varies from one insurance company to another.
Let’s assume you need to have $250,000 of life insurance. Here are some of your options based upon sample rates available. You could buy a:
- 10 year term policy for $60.16 per month.
- 20 year term for $110.03 per month.
- Policy that would last until your 90 years old for $282.76 a month.
- Policy that would last until your hundred and ten years old for $342.19 per month.
Hmm…so many options…
What Life Insurance Policy Should You Buy?
Often times somebody reaching the age of 50 or 60 years old has already bought life insurance once. Perhaps they bought a term policy that lasted maybe 20 or 30 years.
Often times the first term policy is bought in order to have coverage in place for family income protection while kids are young.
Also, very often there is no thought of needing life insurance coverage after the kids have grown up. However, very often we find that people do still need life insurance.
If you had a 20 or 30 year level term policy the premium stays the same for the length of a level term period.
Then you get a letter from the insurance company that says that you can keep the policy beyond the 20 years or the 30 years depending upon the policy that you bought, but you’re going to have to pay a much higher premium to keep it.
Instead, if you’re healthy, this is when you more than likely will want to seek out new coverage.
Now you’re looking at buying new coverage and thinking to yourself that you didn’t like that you bought that policy and now it has come to an end. Now, you have to to buy a new life insurance policy and it’s going to cost a lot more because your older.
The fact is that buying life insurance after age 50 is going to cost more than it does if you’re buying life insurance in your 20’s or 30’s. Age is a major factor in determining the cost of life insurance.
In addition, if you have developed any health concerns such as high blood pressure or high cholesterol this could affect the rate that you would have to pay as well.
Even though you had a policy that has come to the end of its level term, it might make sense just to buy another term policy instead of a lifetime or permanent life insurance policy.
The most important question to answer in order to determine how long you need the life insurance coverage to stay in force for is…
Why Do You Need Life Insurance?
For example, let’s say you are 60 years old and you’re planning to retire when your 70 years old. Let’s also assume that by the time you retire you will have enough other savings accumulated that there won’t be a need for life insurance. You may not need more than a 10 year term policy.
In this case you would be buying the life insurance for what’s referred to as income protection. Once you retire and you’re no longer earning an income you don’t need life insurance to protect your earnings.
Some people feel they don’t want to pay for a life insurance policy and then not end up using it. The idea being is if if this person bought a 10-year term policy that if they live until 70 that all the money they paid for the life insurance would be wasted.
However consider this…
Let’s say you’re 60 years old. You buy a new car and you’re going to keep that car for 10 years. You pay the car insurance premium every year and then after 10 years when you’re 70 years old you decide you no longer need or want the car and you decide to sell it.
Perhaps you decided to give up driving because you no longer wanted to drive anymore. Perhaps you decided to live in a city where you really don’t need to drive because public transportation is so good.
Most people would not think of the money that they had to pay for car insurance as a waste. It was covering them while they had the car and while they had the need for coverage.
Life insurance is no different. Again if the goal is just to have the life insurance to protect your income then you may not need life insurance after you retire. Why pay more for life insurance then you have to?
Here is a different example but this is also one that is pretty common…
Let’s assume that this 60 year old man is looking to buy life insurance because he wants to make sure that his wife has enough income to live on for the rest of her life.
When one spouse passes away the surviving spouse will lose a social security check. Therefore there would be less income coming into the household.
Another reason for buying life insurance might be because one has a pension and perhaps there is no survivor benefit option on that pension. Or maybe there is a survivor benefit option on the pension but it will only pay 50% of the full benefit which may not be enough.
In this situation buying a 10 year term life insurance policy might not be the right choice.
For example, if this 60 year old were to pass away at age 71 there would be no life insurance. Perhaps a social security check is going away and maybe a pension would get reduced or eliminated.
In this case it would make sense to look at longer term options. For example having a policy that stays in force until the age of 90 might be a good solution.
Perhaps you may live past the age of 90, but by that time maybe there won’t be as much need for life insurance. Perhaps the house will be paid off or perhaps even an inheritance would have been received.
You could buy a policy that could last until you were a 110 or even 120 years old. The question becomes does it make sense to pay the extra money for a policy that would last until you were 110 or 120 years old?
Maybe….but maybe not. The chances are very high that you won’t live past 110 or 120 years old.
If your intentions were to provide life insurance protection for your spouse perhaps having coverage only until age 90 might be enough.
However, if you are also interested in helping to leave a legacy to your kids, grand kids, or a charity or perhaps you simply want to make sure certain debts can be paid off then you may want to buy a policy that will last until you are 110 or 120 years old.
Remember, it’s not only important how much life insurance you need but you also need to determine how long you need the coverage to stay in force for.
Should You Buy 10 Year Term or 20 Year Term
If you think you’ll need coverage for 20 more years for example some people think it would make more sense to buy the 10 year term policy and then buy another 10 year term policy in 10 years.
However this may not be the wisest move. Here’s why…
If this 60 year old man buys a 20 year term policy and qualifies for the best rates the cost would be $110 for a $250,000 policy. Over the course of 20 years he would have paid $26,400.
Alternatively if he chose to buy a 10-year term policy at age 60 the cost would be $60 per month. Then at age 70, the cost to buy a new 10 year term policy assuming that he could qualify for the best rates and assuming the same rates a 70 year could get today would be $178.
For the first 10 years he would have ended up paying $7,200. For the second 10 year term he would end up paying $21,360.
Therefore the total cost of the 20-year Term Policy would be $26,400 versus the total cost of the 10 year term policies which would be $28,560. This is a difference of $2,160.
However, this is the best case scenario.
What often happens is that as you get older you’ll typically develop at least minor health problems. As a result it would make the cost of the second 10 year term policy even more.
If they were to qualify for a standard rating which is an average rating the cost of that second 10 year term policy at age 70 would be $325.72 per month assuming the same rates are available 10 years from now. Therefore, the total cost of the second 10 year term over the 10 years would be $39,086.40.
$39,086.40 plus the $7,219.20 equals $46,305.60.
This is why it can make a lot of sense to buy the 20-year Term Policy if you do need the coverage for the 20 years.
We have found that people are very surprised at just how much life insurance goes up as you get older. When buying life insurance over the age of 50 it’s very important to consider just how long you’re going to need to coverage.
Should You Ladder Your Life Insurance Policies?
Another strategy that can be useful can be to ladder term life insurance policies. For example, let’s assume you need $500,000 of life insurance.
Instead of getting one policy that will cover you for 10 years, 15 years, or 20 years you may want to have 2 policies. Perhaps it would make most sense to buy a $250,000 10-year Term Policy and a $250,000 20 year Term Policy.
We know that determining how long you need life insurance to last can sometimes be a difficult decision. If you have any questions and need help figuring out how long you need your life insurance to last for you can give us a call at 714 916-9723.