Many people think of financial planning primarily as a two-pronged strategy: managing current income and debts and then saving and investing for the future. But there’s another component to a comprehensive financial plan that’s often overlooked: protection. This is where life insurance comes in.
Your protection safety net
When it comes to financial priorities in your 50s, does life insurance still deserve a place in the mix? If your mortgage is paid off, your children are out of college, and you and your spouse have an adequate nest egg for retirement and emergencies, life insurance may seem like an unnecessary expense.
However, maintaining life insurance coverage can be a wise strategy at any age. Let’s look at a few scenarios in which life insurance in your 50s and beyond makes good financial sense.
8 reasons people 50+ may still need life insurance
- You’re not an empty nester. Not everyone in their 50s is, given the continuing trend of women becoming mothers later in life. What’s more, research shows that young adults are more likely to live at home with their parents today than they were 50 years ago. And about 6 in 10 parents say they’ve helped an adult child financially in the last year.
- You still have a mortgage. A home is the largest debt most people ever carry. Should something happen to you, a life insurance benefit can keep your loved ones from losing the family home by paying off the mortgage. It can also provide the long-term financial security that comes with full ownership of a major real estate asset.
- You’re still paying for college. Student loan debt is growing at alarming rates for adults ages 50 and older – who are either financing children’s education costs or their own. In fact, the average amount of student loan debt owed by families with a 50+ head of household has more than tripled to $33,053 over the past 30 years (up from $10,073 in 1989). A life insurance benefit can provide the extra cash needed for a surviving spouse to pay down that debt.
- Your aging parents depend on you. Most Americans age 40 and older expect to provide long-term care or living assistance to a loved one within the next five years. What’s more, a record 20% of the U.S. population already lives in multigenerational households—defined as including two or more adult generations, or including grandparents. That kind of support may be financially taxing even in the best of times and this stress may rise considerably if only one spouse is left with the burden.
- Your employer coverage is not flexible enough. Group life insurance coverage through your school system may fall short for two reasons. First, it’s likely not portable if you change jobs (and about 8% of teachers do each year). And second, it may have too low of a benefit to adequately cover your needs. These reasons generally make employer-provided life insurance less flexible than coverage purchased independently.
- Your existing level term life policy is about to expire. If you’ve carried a personal level term life insurance policy, there are more options today for extending or converting this coverage. If your existing policy’s nearing the end of its term, don’t wait until it expires to review your needs. You’ll have the most options while the policy is still in force.
- Your family needs cash to cover final expenses and estate taxes. The national median cost of a funeral ranges from $6,260 to $8,755. But most experts advise budgeting $10,000 or more to cover other expenses such as travel and family gatherings. Some people maintain a smaller life insurance policy to pay for final expenses because insurance benefits are typically available to heirs immediately. In addition, death benefits could also be used to pay estate taxes—instead of having to quickly sell illiquid assets.
- You’d like to leave a legacy. Life insurance also can be an efficient way to transfer wealth to heirs. For example, you could earmark one-third for survivor retirement income, one-third for a legacy for your children, and one-third as a charitable contribution.
Affordable life insurance options
Group Term Life. This type of policy provides a stated benefit upon the death of the policy owner. The policy does not provide any returns beyond the stated benefit amount.
Coverage from $25,000 to $500,000 is available. Premiums are based upon the age of enrollment and increase in 5-year age bands, and you may adjust coverage during the life of the policy. Once coverage is issued, you cannot lose coverage due to health reasons and coverage remains in force up to age 80, although benefits begin to decline at age 70. Discounts are available for non-smokers. There are no set term limits and medical underwriting may be required.
Term Life Insurance is best suited for those who know for certain their need for life insurance coverage will be temporary—that they will have accumulated enough liquid assets to self-insure the funds/protection needed, or that surviving family members will no longer have a need for the extra protection life insurance provides.
Level Term Life. A fixed benefit amount is provided for a fixed period of time for a fixed premium amount. Coverage is available for up to $1 million, and 10, 15 and 20-year terms are available. Full coverage (no benefit reductions) will remain in place up to age 80.
The younger the age at which you purchase coverage, the lower the rate will remain for the duration of coverage. Premiums will not increase due to your age and benefits will not decrease for the entire term. Medical underwriting is required. A discount for non-smokers is available.
Level Term Life Insurance is best suited for those in good health who have a fixed time period or need for protection, such as paying off a mortgage or student loans. A new Level Term policy may be purchased at the end of the initial policy, but you must reapply, and the premium is based upon your current age.
Guaranteed Issue Life. This type life insurance provides a fixed benefit with no health limitations for those 45 and older. NEA members are eligible for up to $20,000 of coverage (depending on your age) with guaranteed acceptance, no questions asked.
This type of life insurance is best suited for those who don’t qualify for other types of life insurance due to age or pre-existing conditions. There are no health questions, no medical exam is required.
To keep rates affordable, benefits are limited for the first three years and decrease as you age. You won’t be over-insured and you’ll receive the right amount of coverage at each stage in your life.
The bottom line
Even as you age, life insurance can be an essential tool for protecting your family’s financial well-being should something happen to you. Check the NEA’s affordable coverage options and get quotes to find the coverage and rates that fit your financial plan.