Life insurance for seniors: What you need to know

Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York

For people of all ages, life insurance is an important element of a good financial plan. When you're young and just starting out, it offers a way to cover large debts and help care for young children. But as you age, your needs will change, causing you to wonder if life insurance is still worth it.

While buying life insurance in your 20s and 30s makes a lot of sense, it's still important to find the coverage you need at a price you can afford in your 60s, 70s and beyond. Here's what you need to know.

Why do seniors need life insurance?

Senior citizens obtain life insurance for a variety of reasons. They often have the following goals:

• Provide financial support for their loved ones.
• Help with the cost of end-of-life medical care.
• Cover final expenses.
• Pay off outstanding debts.
• Leave a legacy to surviving family members.
• Support a favorite charity.

It's important to recognize that if you're at this stage of life, you're likely nearing or in retirement. This matters because retirement is often one the largest financial goals that people face. When this goal is reached, it often changes your life insurance needs and adjusting accordingly is important.

What can life insurance cover?

People often think about using life insurance's death benefit for things like funeral costs, lost income, education expenses and mortgage payments. But there are other, lesser-considered instances where life insurance can help retirees.

Here's one example: Approximately 70% of Americans over the age of 65 will require some form of long-term care services or support. According to research, the average yearly cost for in-home health aides was almost $62,000. Considering average claim length and inflation, this is a risk that needs to be planned for.

Unless already offset by sufficient assets, adequate long-term care insurance or life insurance with a long-term care rider, this is a risk that can be protected with permanent life insurance.

If one spouse dies after needing care, the surviving spouse can use the payout from life insurance to help fill any depleted savings buckets, such as retirement savings. Unburdened by debt, they can maintain their lifestyle and standard of living.

Life insurance for seniors over 60

It's never too late to consider life insurance. Your financial needs may have changed in your senior years, but you can still benefit from having life insurance — especially as you weigh your changing circumstances as you enter retirement.

In addition to losing your previous income during retirement, you might also lose employer-provided benefits like health insurance.

What types of policies should I consider?

Just like when you're younger, the best type of life insurance for you in your later years will depend on your current financial situation and lifestyle needs. If you've already got insurance, it can be important to review your policy to make sure it's still providing the coverage you need. If you have a term life insurance policy, for example, your policy could be approaching its expiration date. Or you could be facing increased premiums or a deadline to convert the policy to a permanent policy.

Many insurance companies believe older policyholders are more likely to be financially stable, with lower debt, higher income and more assets. If that's true for you, you might want to consider a guaranteed issue life insurance policy. These policies don't require a medical exam, which could be helpful, depending on your current health.

In general, those in their 60s often benefit from permanent life insurance policies, which offer a death benefit, plus the opportunity to build cash value over time that you can use while you're still alive. Age is a factor in the price, so these policies may become too expensive the older you get.

How much life insurance do seniors need?

As you weigh the type of policy and the amount of coverage you need, take these steps:

1. Calculate the expenses you'll face in retirement. Depending on age and lifestyle needs, retirees should determine what percentage of their pre-retirement income they'll need to live comfortably. Do you have enough in savings, or will you need another source of income?
   
   You'll also need to consider health care costs and the expense of long-term care, like nursing homes or in-home care. Don't forget about funeral expenses, which can run into the thousands. Finally, be sure to factor in inflation. For help, check out USAA's life insurance calculator.^{See note1}
2. Work with a life insurance specialist or seek advice from a reputable source to understand your individual needs. USAA's insurance professionals can help you examine all your options.
3. Build a policy to meet your needs, making sure the death benefit covers your projected needs at standard mortality ages. If you're option for a policy with a cash value component, be sure to determine if the cash value rate affects the amount of the death benefit over time.

Once you purchase a policy, review it yearly to make sure it still meets your needs. As you get older, lifestyle changes or unexpected life events could impact your financial needs or beneficiaries.