Seniors are 14% more likely to have purchased life insurance than consumers overall, according to a Deloitte survey.
While this may sync with our expectations of life insurance purchasers, it’s an odd statistic given that seniors typically have fewer financial obligations and less need for income replacement. In addition, the life insurance options available to seniors are often quite expensive and limited in scope.
Given these factors, you have to wonder why seniors are more likely than other demographics, such as homeowners and new parents, to pay for coverage. And, if you’re senior, it may make you wonder whether it’s in your best interest to pay for a policy.
Below, we explore some of the reasons why a senior may need life insurance and driving factors behind a purchase.
Why Would Seniors Need Life Insurance?
While there are some cases in which life insurance is purchased in order to get a loan or as key man insurance for a business, it’s typically intended to provide financial resources to your family in case you pass away. That’s why the marketing of life insurance is usually focused on major life events with high associated costs. If you’ve just had a child, you may want a policy to ensure their care and education is paid for. If you bought a house, you might want enough coverage to pay off the mortgage and ensure your spouse can continue living there after you die. Life insurance is also sold as a mechanism for income replacement if your family would have trouble getting by without your salary.
Seniors, particularly those that have already retired, should have the fewest financial obligations. There are exceptions to this rule. You may have a sizable estate and want to protect your children from a large estate tax bill. Or you may have a special needs child that would need a caretaker if you were no longer present. However, this shouldn’t reflect the majority of cases.
If you look at the breakdown of policies purchased and savings, there’s actually a greater indication that seniors may simply have moderate financial obligations and a lack of retirement savings. Nearly two-thirds of policies purchased (62%) were for permanent life insurance, with the average death benefit of such as policy being around $81,000. In addition, 41% of seniors simply don’t have retirement savings. This suggests that seniors may be taking on the high costs of permanent life insurance in order to shield their family from expenses that would normally be handled using their savings. For instance, a spouse may have a hard time paying bills without your pension. Or a senior may purchase a final expense policy, intended to cover the costs of a funeral.
The Agent Factor
Aside from a lack of retirement savings, there’s also a plethora of evidence demonstrating that life insurance insurance agents have an incredible impact on driving up the number of seniors purchasing coverage. Deloitte’s survey indicated that speaking to an agent was one of the three most important events for life insurance buyers in their purchase decision.
This makes sense, as life insurance is a big purchase, and the process requires to you seriously evaluate your current and future financial situations.
However, agents aren’t unbiased parties and nearly every major insurer has faced consumer complaints of agents being aggressive in selling products. The majority of these are targeted at companies that focus their sales tactics on seniors, as children see policies sold to their parents that are incredibly expensive or seem unnecessary. Life insurance agents make a commission that’s tied to the size of the policy sold, and can earn a higher amount by selling certain permanent insurance products. Given the weight of speaking to an agent for buyers and the large number of permanent policies sold, it’s easy to wonder how much of a role agents have in driving up the number of seniors with life insurance.
Finding the Right Solution Without the Hard Sell
If you’re a senior and are interested in life insurance, you may be concerned about the advice you’d get from speaking with an agent. It’s not as complicated to determine your life insurance needs as some people might indicate.
Before purchasing a policy, you need to start with a very clear intention for why you need the coverage. Then you weigh the cost of a policy against your assets and ability to save. As an example, if you’re 70 and are considering final expense insurance as your family wouldn’t have $10,000 on hand to cover the cost of your funeral, you could purchase a small permanent life insurance policy.
Or, you could buy a much cheaper 10-year term life insurance policy and put aside $1,000 per year, so your family would have assistance no matter when you passed away. The better solution often is to set yourself up to not need life insurance, or only need it for a short period of time.
Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.
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