As people now live longer than ever before, it is not surprising that insurance companies have changed the products that they offer policyholders. It used to be that if you were over 50 life insurance was going to be an expensive proposition, and the choices that you would have in terms of the policies available to you would be pretty limited. The problem was that to give relatively low-premium term insurance with no cash value to people who were fairly likely to die within the term of the policy was not very attractive for the insurance company.
A whole life policy, on the other hand, did have this cash value amount that increased as you paid the higher premiums toward it. The idea behind the cash value is that by the time the policyholder passes away, the death benefit payout that goes to his loved ones will be equal to (or even exceeded by) the cash value. It added up to less risk to the insurance company.
So what has changed today, other than the fact that people live longer, and why is buying term life insurance over 50 not as unusual as it used to be? It really comes down to the math. If you want a 20 year policy when you are in your 50s, selling it to you is statistically a better proposition than it was, say 40 years ago. You are fairly likely to outlive the policy, which means that the insurance company will be obliged to pay out nothing. The fact is that it is possible today to find term life policies for people even into their 60s. Now, there very probably will not be as great a difference in monthly premium amounts between term life and whole life as there would have been when you were in your 20s or 30s. Still though, if a lower premium amount is paramount to you, look into term life as probably the cheaper option, during these years when your income will most likely be declining.
If you do buy a term policy, ask also about provisions that you can get that extend the length of the policy if you outlive it, or even convert it to a whole life policy at that time. There are even what is know as return-of-premium term policies, that allow you to take the premiums that you have paid in over the policy life, as a lump sum, tax free.
Another reason term life insurance for people over 50 is attractive is that there is often no cash value amount associated with whole life policies sold to people over that age. This removes a major selling point for whole life, as you can usually borrow against your cash value or take it as a lump sum if you elect to end the policy early.
A few of other points: advertisements marketing whole life policies to seniors often proclaim loudly that no medical exam is required. This may enable a lot of people in less-than-excellent health get insurance, even when they are older, but remember, you’ll pay for this feature. If you are in good health, shop around and learn just how much you can save each year by taking the medical examination.
Also remember that while the ‘tax-free’ lump sum payable to your beneficiaries when you pass away is exempt from income tax, there may still be estate taxes to consider.
Read the fine print. Often with life insurance for 50 and over, if you die withing the first one or two years of taking out the policy, there may be a reduced payout or no payout at all.
A final word: with over 50 life insurance, you may very well pay more into a whole life policy than your loved ones will get when you die. In this case you will have put months or years into premium payments that ended up simply enriching the insurance company. It may be the best argument for getting a term life policy if you are a senior: instead of paying for whole life because of the guaranteed payout, buy term life and put the difference into conservative investments as long as you are able. Started soon enough, this can exceed the whole life guaranteed payout amount.