Peter Boys, Boys Financial Services

When Life Insurance Makes Sense For Seniors

The best deal with life insurance is for young, healthy clients. Even though premiums for seniors are much higher, life insurance may still be beneficial based on their specific needs. Believe it or not, there are strong considerations to be made when life insurance makes sense for seniors.

There’s no shortage of real life situations ranging from larger-than-expected tax liabilities to the failure of a pension plan.  Even the good news can conspire against you.  With longer life expectancies and earlier retirement, there’s a growing risk that rising medical and living expenses will consume your retirement funds.

Today, 65% of seniors are retiring with debt, either with a mortgage, a large line of credit balance or having co-signed a loan to help their kids to get a house, education, etc.  These are all reasons for today’s seniors to be concerned, as inflation keeps eroding your savings as you try to pay down your debt. 

Another concern is that many seniors will face their highest tax bill on their death.  A common example is parents leaving the family cottage to their children along with a massive imbedded capital gain, thanks to soaring vacation property values.  Large RRSP or RRIF investments can also have huge tax issues on death.  Carrying debt to the grave plus unexpected tax bills highlights the importance of having adequate insurance in order to preserve or equalize your estate value for your beneficiaries.

There are over 2,400 life insurance products and variations from which to choose from.  Some term policies provide coverage up to 85 years of age, with a rare few to age 100.  For those currently insured and in good health, you may want to consider an entirely new policy at a lower cost than what your current plan renewals will cost.  A new policy will requiring new medical evidence, but you should look into this before the old policy costs increase or the policy lapses.

Underwriting age limits for permanent insurance plans vary between companies and product lines.  With today’s low interest rates, premiums for permanent plans have been increasing, while the number of companies offering term life policies is decreasing since underlying costs have proven higher than originally calculated.

Seniors with debt should look at some type of insurance due to the effect that debt and taxes will have on their estate.  As well, survivor benefits on some pension plans provide only 60% of the original payment to the surviving spouse after the plan holder deceases.  Life insurance on the plan holder can be an effective way to provide more income for the surviving spouse.

Considering that the end beneficiaries of these policies are often adult children, it might make sense to purchase the policy on their parents to shield their inheritance on their parents’ demise.  This way they own the policy and can use it to pay the taxes or keep the cottage, etc.

One issue to remember is that changing policies means exposure to a new two year term of incontestability and the suicide exclusion.

There are many different plans to choose from that can be tailored to one’s business, individual or family needs.  The more complex the need, the greater the importance to have your legal, tax and accounting professionals work with your financial advisor.

 

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