The Value of Life Insurance for the Final Years

April 17, 2018 | by the National Care Planning Council

Life insurance for the final years of life is generally a good thing. A death benefit can be a very valuable resource for a surviving spouse. When one member of a couple dies, one of the social securities disappears -- the smaller of the two. This leaves the survivor with less income. Sometimes, pension plans also stop paying when the person receiving the pension dies. Life insurance will help cover that deficit in income.

Beneficiaries never complain about too much life insurance. The biggest challenge with having life insurance could be the ongoing cost. Some policies are paying for themselves, but the poor fixed investment returns over the past years, often mean policies that were projected to be paying for themselves may actually have gone up in price because of an increase in premiums to keep the policy going.

Life insurance is also an excellent way to transfer money to the next generation if there is no spouse. A death benefit is income tax-free. The biggest challenge with finding new life insurance coverage for an older person is the cost and the insurability. The older a person is, the more expensive life insurance is. At some point, the only cost advantage of buying new life insurance over keeping the same money in the bank is the tax-free death benefit.

The more healthy a person is, the less expensive life insurance is. As a general rule, most elderly people have some sort of medical problem and in many cases would be turned down for life insurance by most companies. In recent years, companies that will guarantee insurance coverage regardless of health have become more popular.

Many whole life policies and certain universal life policies will have enough internal cash value to actually pay the premiums on the policy. Whole life policies that also pay dividends can also apply those dividends towards the premiums. Some individuals have been paying on these policies their whole life in order to maximize the cash value of the policy. Often times those policies that have been paying dividends will be increasing in the amount of death benefit as well.

As one nears the end of life, the death benefit of the policy can be more valuable for planning purposes. The cash value should be used to support the cost of the policy. Instead of taking the cash value out of the policy and surrendering it, a good whole life policy that allows cash value and/or dividends to be applied to premiums should be readjusted to reduce the premiums to the lowest level. If the policy does not allow cash value to be applied, sometimes loans against the policy can be used to pay premiums. Caution must be exercised that the loan does not get too large or it will kill the policy.

It is extremely important from time to time to review the beneficiaries on all life insurance policies. If the spouse was a beneficiary and a spouse is no longer alive and there are no contingent beneficiaries, at the owner's death, the money will pass to the estate and if the death benefit is large enough will likely have to go through probate. As one nears the end of life, passing on the death benefit of a life insurance policy might become part of a larger planning process. Care should be taken to review all life insurance to make sure that the beneficiaries or the contingent beneficiaries are properly identified. With contingent beneficiaries, it is always best to specify who gets what and when. As an example the following might be a common statement for the contingent beneficiaries: "pay all children of the deceased in equal amounts to survivors."

When it comes to life insurance for aging seniors, it is important to review those policies, reduce premiums were possible and make sure that the beneficiaries on the policies are correct.