Life Insurance in Retirement

Wed, 2014-03-26

There are many reasons to consider the purchase of life insurance.  For those in retirement, I can think of 4 primary reasons; 1) to maximize the value of an estate 2) to equalize an estate as in the case of a blended-marriage 3) to provide proceeds immediately or privately without having to wait for probate 4) to ensure loved ones aren't burdened with your funeral and final expenses.

There are a number of considerations but the first two are insurability and cost.  All other things being equal, the better your health the more affordable the coverage.  No medical insurance may be an option but the premiums already reflect this uncertainty.  Actuaries look at mortality tables and rates are based upon various factors including your age, gender and lifestyle.

There are 3 options to consider and many, many variations.  They consist of Term, Whole Life and Universal Life.  For simplicity, think of universal life as whole life with even more investment options.

The simplest discussion is a comparison of Term 100 vs. Whole Life. 

Term 100 is straight life insurance with a premium that is known, level and guaranteed.    Your only obligation is to pay premiums but you could decide to stop at any time.  Should longevity be in your bloodline the policy matures at age 100.  It is the least expensive-at least initially.

Whole Life has additional features that include the ability to fully fund the policy by a certain age.  Often it is in 10,15 or 20 years but other options exist.  It is an asset that can be used to borrow against, used to pay premiums or take a sum out known as the cash surrender value.

Participating Whole Life contains all of the above but with the option to participate in dividends and grow the face value of the policy. 

I did a recent quote for a female, age 65, non-smoker, good health, face value of $30,000.  T-100 $76, Whole Life (fully funded in 20 years) $104 and the Participating Whole Life ($25,000)$136.  All prices are monthly with a break for annual payers. 

Most individually issued term life policies today have provisions for conversion that may allow you to convert some or all of your coverage to whole life without evidence of insurability.  All insurance agents should be able to provide more information on this topic and the multiple considerations one needs to consider.