Life insurance is a necessity for most people at some time in their lives. Age, health, and the desired death benefit determine a policy’s premium. What does this mean if you are over age 50?
Generally, purchasing life insurance coincides with major, life-changing events such as buying a home, marriage, or the birth of a child. For many of us, these life events occur in our 20s and 30s when our health is at its best. The need for life insurance generally lessens as we age, either because the need is eliminated (mortgage paid off or children finish college) or we have accumulated sufficient wealth to achieve financial security for the family.
However, many individuals still need life insurance well into their 50s, 60s, and even 70s to help them achieve a variety of goals, such as providing for spouse or children, gifting to charity, covering funeral expenses.
What is The Cost of Waiting?
It is a misnomer that life insurance is not available to individuals over the age of 50. It is available, but purchasing life insurance at an older age generally impacts both the annual premium you will pay as well as the type of policy that is available to you.
In general, insurance premiums tend to increase commensurate with the risk that the policy will have to pay out. For this reason, premiums on older individuals are higher.
The "older you are, the higher the premium" can be illustrated with the cost for a ten-year level term life insurance policy. When you purchase a level term policy, the premium remains the same for the term of the policy. The premium you pay in year one is the same as in the last year. At the end of the term period, the insurance is terminated. In some cases, you can continue the policy, but the premium will be significantly higher.
Once over age 50, the level premium for a ten-year term policy increases significantly based on the age when the coverage is secured as indicated below:
- Individual in their 50s: 8 – 10 percent per year
- Individual in their 60s: 10 – 12 percent per year
- Individual in their 70s: 12 – 14 percent per year
Age Affects The Types of Policies Available
All insurance companies have cut-off points where they will no longer sell term policies that are of a certain time and duration. Some insurance companies will not offer a 30-year term policy to someone age 50, while others may use age 55 as their maximum age. Similar limitations exist for 20-year and 25-year term policies.
By waiting too long to purchase a life insurance policy you not only run the risk of not being able to purchase the term length you desire, but also of having to opt for a more expensive form of permanent insurance, such as universal life or whole life.
Health Ratings Can Change
Even though the cost of life insurance will increase as you age, the heath rating assigned by the insurance company may change at certain "milestone birthdays" (i.e. age 60 or 65).
This means that if you have high blood pressure, high cholesterol, or weight issues, you may be assigned a poor health rating in your younger years. However, once above a certain age, the insurance company’s category for the same medical condition may result in a better health rating. As we age, life insurance companies relax on certain health and lifestyle concerns. For this reason, you should not assume that a health issue will preclude you from purchasing life insurance.
It is important that you purchase life insurance as soon as the need arises. Waiting can impact your premium and the type of coverage available to you. Because life insurance companies can differ regarding their underwriting requirements, it is important that you work with a knowledgeable insurance professional who can assist with securing the best coverage at the best price given your situation.
Contributions were made to this article by Brian Rykovich, CFP, a Wealth Advisor at Bedel Financial Consulting, Inc.
Elaine E. Bedel, CFP, is CEO and president of Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. She is a featured guest each Wednesday on the WTHR (NBC, Indianapolis) Channel 13 News at Noon, "Your Money" segment. Elaine’s book, "Advice You Never Asked For… But wished you had," is available on Amazon.com. For more information, visit www.BedelFinancial.com or email Elaine at email@example.com.