Whole Life Insurance For Seniors Over 70 – Many people have opinions about why it is better to buy term life insurance than whole life insurance. Many explained this
I think these are good points, but I think they can confuse us and take us away from the main point of why we should choose term life insurance over whole life insurance.
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Before we move on to our discussion, I need to briefly explain the difference between term life insurance and term life insurance because I realize that people are new to this insurance.
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Term insurance is insurance protection that you purchase for a specific period of time. This period can be 5 years, 10 years, 25 years or up to 99 years. Insurance companies allow you to specify the length of the period within what they allow.
When you purchase temporary insurance, you cover yourself against a specific health risk. For example, you buy life insurance worth 1 million. USD that covers you until age 70. The health risk is that if you die prematurely, your family members, such as your wife and children, may be able to rely on insurance money and face less financial hardship as a result of your death.
Term insurance has no residual cash value. This means that if you surrender after X years, there will be no amount of money left to recover.
Premium terms can increase over time, decrease over time, and be equal in duration (tier term). Some policies have a fixed premium, but the plan is renewable for x years, after which the premium changes.
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On the other hand, life insurance, as the name suggests, is insurance that covers you for your entire life. Remember: the goal is to cover you for life. Although the title indicates whole life, some whole life policies cover up to the arbitrary age of 120.
The main whole life plan covers life insurance and you can attach add-ons that cover disability, critical illness, TPD, exclusions.
You can choose to pay premiums for life (e.g. from 25 to 99 years) or you can choose limited premium payment terms (pay for 10, 15, 20, 25 years and then you no longer need to pay. The shorter the period, the higher the premiums per year)
When you pay premiums, they go to an investment fund called a participating fund. As a rule, the insurance company manages the participating fund conservatively.
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The reason you buy insurance is to cover health risks. There are many different types of health risks, such as the risk of hospitalization, the risk of cancer, organ failure, hitting your head against the wall, vertigo, not being able to work.
If a person died prematurely, their dependents would have to bear the financial burden:
Technically, there is a third option which is to buy a mix of both (but we’ll get to that later)
Let’s call him John. John will be 41 years old on his next birthday. John doesn’t smoke and earns $40,000 a year. John has a wife and an almost-born son.
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If John dies prematurely, his wife and son will suffer to some extent. While his wife works, he loses income, which goes toward paying expenses and saving for retirement.
This will also put more stress on your wife. Without his income, his wife will also have questions about how she manages her work life and childcare.
A sensible way to show love and responsibility is for John to purchase life insurance that adequately covers his income and a portion of any outstanding debt.
Suppose the family has no outstanding debts. This means we don’t need to set aside a certain amount of money to pay off debt when planning insurance coverage.
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A reasonable amount of protection that John should cover is equivalent to 25 times his current income.
If John dies at any time during those 25 years, his wife will have an amount equal to 25 years of income to cover his share of future household expenses. At least your son and his wife don’t have to be so stressed about it.
25 years is a good guess until the son becomes less dependent on his wife. So your child should be productive and able to contribute to the household income.
If your income is higher, you will need more coverage. If your dependents are estimated to be less dependent, reduce the number by 25.
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This rule is not rocket science. If you use MoneyOwl’s insurance protection guided tour, the guided tour will give you approximately the same conclusion.
Note: If you want to take income inflation into account, the coverage amount may be higher. If we follow the same example, John will need $1.46 million based on a 3% annual inflation rate.
John has two main ways to get $1 million covered: buy term life insurance that covers at least 25 years or buy whole life insurance.
For life insurance, John can purchase limited payment terms of 10, 15, and 20 years. Once he finishes paying the premiums, he will own the whole life policy.
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If John chose the term, he would try to cover his life until age 70. John chooses to be conservative and pass age 66 when his son becomes economically productive.
If John chooses whole life, he can choose to pay for a limited time and have lifetime coverage.
The lifetime option seems good as the plan covers $1 million over a lifetime. However, insurance costs increase from age 65 to 70. After this period, the probability of death increases with age. As the probability is higher, insurance costs naturally take this higher probability into account.
I can generate insurance premiums for a 41-year-old non-smoker for a period and for a lifetime of various lengths with one insurance company.
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For clarity, I excluded all pilots such as critical illness, early critical illness, but only included the TPD pilot. I think we should deal with each insurance risk separately and not continue to mix these things into a lump sum.
I can generate a capped payout on a life insurance policy in 10, 15, 20 and 99 years.
However, there is a reason for this. You are insured for life, from 41 to 99 years old. This is a longer insurance duration than the term, which is limited to 70 years. Insurance costs are much more expensive to cover after age 70.
To obtain adequate coverage, John must spend almost half of his salary on insurance coverage. A maximum salary of 10 years is not possible because it is more than your salary!
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These are the mandatory payments that John must pay. If John doesn’t arrive on time, he will lose coverage.
John will wonder how he will spend on family expenses and save for other financial goals if 47% to 104% of his salary is spent on insurance coverage.
The future option will cost John less than 4% of his annual salary. This will leave you with plenty of money to spend on expenses and save for retirement.
And remember: John needs more than just life insurance, he would still need to cover disability income and serious illnesses.
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If John opts for the same life insurance option, he could end up spending most of his salary on insurance.
Some may say: Kyith, this is an unfair comparison, we must respect the other advantages of life insurance.
I think we often waste time arguing about another aspect of term compared to whole life because it distracts the reader from why they are buying insurance.
John’s main focus is to ensure that if he dies early, his family will have adequate coverage for as long as they need.
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If he spends so much on insurance, then he will have less towards his current spending goals and future financial goals.
Focusing on this, let’s calculate the cost of insurance to obtain this coverage, at least until John turns 66:
Regardless of which life option he chooses, John would spend 12 times as much on insurance coverage before his son would be economically productive.
For example, if John wanted $1 million coverage until age 70, he could opt for $200,000 basic coverage with a 5x multiplier.
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In my opinion, a hybrid whole life policy is an admission by insurers that they do not provide adequate lifetime coverage.
If whole life is effective in properly handling our coverage, hybrid whole life policies should not exist!
I would encourage you to ask yourself what your reason is for getting insurance coverage. If it’s for protection… then why pay more when you have the perfect option to pay less?
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