Why seniors buy life insurance | CommunityPress.com | cincinnati.com
by admin on Nov.27, 2011, under Life and Health insurance
Why in the world would an older person buy life insurance? Now that the kids are raised and some money saved, aren’t these folks dropping their coverage? Why would they feel the need for more coverage now? In my practice a lot of people in their 60s, 70s and 80s buy life insurance. There are several reasons why they feel the need to do so.
Many are not comfortable with what will be left behind for their spouses after they are gone. Far too many elderly women are poor. Twenty-five percent of women become impoverished within two years of being widowed. A MetLife study found that women over age 65 have an average annual income of just $21,500, half that of men in the same age group.
During their working years many breadwinners scrimped and saved, not knowing what the future would hold. Now that the future is here for them, some feel that they can safely afford the life insurance that they avoided earlier. If they know that their spouses will need the lump-sum death benefit or the guaranteed-lifetime income that the death benefit can buy, they will try to preserve their existing life-insurance policies or else rehabilitate those policies into more modern, cost-effective policies with better guarantees. Many will add a new policy.
Planning for a spouse’s widowhood is not the only reason seniors are buying life insurance. Another goal is financial legacy. On average the typical post-age-65 household is worth 47 times that of the under-age-35 household. That gap is the widest on record. Twenty-five years ago the gap was 25-to-1, about half the current disparity. Today’s seniors are doing much better than their kids.
Frequently, parents living comfortably in retirement can afford to help the long-term future of one or more offspring by using part of their retirement income or accumulated wealth to create a legacy through the purchase of life insurance. In this way the parent can feel better about the kids’ and grandkids’ future welfare. Trusts can be useful here.
Combining these two concerns - caring for one’s spouse and helping the kids out - with one solution makes sense. Assuming that both the widowed spouse and the kids will may well need to use the funds later in life, and assuming that insurance dollars are a suitable solution, one life-insurance policy can address both goals. That is, it can provide a death benefit for spousal support and, to the extent that it is not all used up by the spouse, a legacy fund for one or more offspring.
Here is yet another reason that life insurance is often purchased in later life: Treating heirs fairly. Consider Tom, who has built his fledgling business into a major manufacturing company. While his kids were growing up, he hoped that one of them would eventually take over, own and operate the business into the future. Eventually, it has become clear that daughter Susan should be the successor since son Joe has other aspirations.
Since the firm is the only really large asset in the estate, and since neither Susan nor Joe want Joe to be a silent partner in the business, Tom has a dilemma: If he leaves the business to Susan, what is left for Joe?
Life insurance can be used to equalize Tom’s estate bequests. Tom can decide on a fair value of what Susan will inherit and arrange for an appropriate amount of insurance on his own life to be payable to Joe. Properly arranged through an irrevocable trust, this will allow fair treatment of both heirs while not increasing the size of Tom’s taxable estate.
In a future column we will explore additional reasons why seniors buy life insurance.
J. Brendan Ryan is a Cincinnati insurance agent. Email him at jbryanclu@aol.com.
Source:
