Options For Seniors Who Outlive Their Life Insurance Policy
There are a variety of potential options for seniors who outlive their life insurance. Here's what to know and how to prepare
The average life insurance policy is worth about $250,000. A basic life insurance policy plan could cost anywhere from $50 to $70 a month. However, these are the average rates. How much you ultimately pay depends on the type of life insurance you apply for.
One of the most affordable forms of life insurance is term life insurance. A standard 10-year term life insurance premium for a $250,000 policy can cost $650 a year, for example. Term life insurance policies are a lot more affordable than variations of permanent life insurance policies, which offers coverage for a lifetime. That is the main difference and limitation of term life insurance.
Term life insurance only offers coverage for a limited, predetermined period. If you buy a 5-year term life insurance policy and die one day after the 5-year term, then the policy becomes null and void. No death benefits will be paid out and years of premium payments are essentially wasted. Outliving a term life insurance policy can happen to middle aged and elderly people who bought life insurance later in life. There are a few options seniors can employ before a policy runs out, and less so if you outlive your policy.
Return of Premium Rider
If you know that you are within a year to six months of outliving your current life insurance policy, you have a few options. Hopefully, your current policy includes a return of premium rider. With an ROP rider, you can get every premium payment refunded, tax-free, if you outlive your policy. An ROP policy refund is tax-free because it is a refund and not a payment. For example, if you paid a monthly $70 premium for a ten-year policy, then you could get back $8,400 in a refund. Still, only the premium would be refunded. The accrued cash value of the policy would revert back to the insurance company.
Also, a term life insurance policy with an ROP rider can be as much as 30% more expensive than an average policy. Your best option is to include such a rider when you buy the policy. You may be able to include an ROP rider as a conversion later on. Still, you would only be refunded for premiums paid from the point that a conversion is initiated.
Term Life Conversion Rider
Almost all term life insurance policies include a conversion rider. This is a policy option where you can convert your term life coverage into form of permanent coverage. Like a whole life insurance policy, for example. You should be able to lock in your current premium rate or even lower your coverage needs. The downside is that permanent life insurance policies can be anywhere from 7 to 10 times more expensive than term life insurance. Again, you would have to initiate this option before your policy runs out.
Senior Life Insurance
The truth is that if you have outlived your term life insurance policy, you don’t have many options. You must essentially start over. Also, the older that you are, then the closer you get to the end of your life. As morbid a thought that is, insurance company actuaries take information like this seriously. Older and unhealthy applicants pose serious, potential payout risks. There are several senior life insurance options available to you.
If you have outlived your life insurance policy, burial insurance is an affordable alternative you should consider. Burial insurance is a truncated version of a traditional life insurance policy. You can name beneficiaries or borrow against its cash value, though it may not be a good idea.
Burial insurance benefits should be used for paying for all of your funeral expenses. An average burial insurance policy can be valued at about $25,000. You can apply by phone. There is usually no need for a medical exam. Also, your application could be approved in minutes or hours. You could pay a few dollars or tens of dollars a month in premium for a basic policy. Any named beneficiary will be responsible for paying all of your final expenses.
Final Thoughts: Make the Best of Limited Options
Burial insurance is affordable, easy to apply for, and may be your last chance for life insurance. Especially if you are a senior citizen who has outlived their life insurance policy.