Why would anyone want to lose a sizable portion of their inheritance to “unwanted heirs?” Such heirs can include federal estate taxes, state inheritance taxes, estate administrative costs (i.e., probate costs, professional fees, final expenses, and debts), etc.
Life insurance for senior citizens can help combat this growing problem.
Though often overlooked, the life insurance market for seniors is growing steadily today.
Here’s why: many seniors have money set aside for heirs in bank certificates of deposit, stocks, bonds, and other financial vehicles. Often this money yields small or little return, and it becomes taxable upon death or transfer to heirs. For many, life insurance for seniors is a solution.
Several products are on the market for which seniors can still qualify. The most common one is single-pay-premium whole life. Take the example of an 80-year-old male, nonsmoker, rated standard, who has $100,000 sitting in an interest bearing CD that he wants to leave to his grandchild as an inheritance. As of early September 2008, the average interest rates for high-yield 5-year CDs were running from about 3.8% to 5%. If a senior invests in such a CD for 5 years at 4.070% interest, the senior would have a potential total investment of $122,567.11–minus the costs incurred upon transfer or death.
Now, for the life insurance alternative: the same 80-year-old male, nonsmoker, rated standard, could put his $100,000 into a single-pay whole life policy. Instantly, the man could have a death benefit of over $130,000 (depending on the insurer). Additionally, since it’s a life policy, the payout to heirs would not be taxable in most cases; and the death benefit may grow as the account value grows.
With average life expectancy continuing to increase as people live longer, the need for life insurance in the senior market is continuing to grow also. Those seniors who have nest eggs set aside for heirs in non-insurance instruments may well want to re-think their choices. The ability of life insurance to increase instantly the value of those nest eggs should have strong appeal, especially since the senior can potentially eliminate the costs incurred with most investment vehicles and the taxes associated with them.