I see that many financial “gurus” like Dave Ramsey talk about buying term insurance only, but term life is not always best for everyone.
For young families, term life is usually a better option because you can buy a lot more term life insurance when you’ll need it most for a lot less money than any permanent life insurance policy would cost you.
If you’re over the age of about 60 or 65 and you want a term insurance policy for any amount of life insurance above $25,000, like a 20, 25, or 30 year term, you may very well be better off buying a universal life policy with a 20, 25, 30 year, or longer guaranteed level premium.
Check out this comparison below of the best 25 year term rates compared to the best 25 year universal life rates available to a 65 year old male or female in good health for $100,000 of life insurance. These are all monthly rates:
Male Age 65 Female Age 65
25 Year Level Term: $160 $120
25 Year Universal Life: $135 $100
Not only are some universal life rates with term like guarantees less expensive than many term insurance policies for seniors, they are also a better value in my opinion. They’re a better value because at anytime during your guaranteed level premium period you can pay more into the universal life plans to extend the duration of your guarantee.
If you were to purchase a 25 year universal life plan and at anytime in the future you decide you want any coverage for longer than 25 years, you can extend your policy by paying more into it and without having to show any evidence that your health is still good.
The only exception to the above is Protective Life’s Custom Choice UL product with a shorter duration guarantee. While I like Protective Life because they are really aggressive in underwriting for some tougher cases, their Custom Choice UL product with a 10 to 30 year guarantee is not a true universal life policy, as they put a limitation on being able to extend the policy which makes it almost identical to a regular term insurance policy.
A universal life policy with a term like guarantee is also better if you want to try to sell your policy via a life settlement someday, as all policies must be extendable at a level premium to age 100 to be sold.
Some life insurance companies are also more liberal in underwriting on their universal life insurance products than they are on their term life products. If you’re age 60 or older and have type 2 diabetes, are obese, or if you have mild coronary artery disease or other ailments, it is very likely that you will qualify for a better rate on universal life than you will on term life.
Almost all term insurance companies have a conversion option for which you can automatically extend your coverage, but they’ll only allow you to convert up to your age 70 or 75 with most term life companies.
I’d recommend that any senior citizen that’s looking for a term insurance policy to also get quotes for the best universal life rates with an identical guaranteed level premium. The best term universal life rates will not show up on any insurance websites as they must be manually run using each specific insurance company’s software.
It can be time consuming to run illustrations for a bunch of individual life insurance companies and for several different duration (i.e. one for 20 years, another for 25 years, 30 years, 35 years, etc). Because it’s a time consuming task that will not result in a quick sale, I suspect many insurance agents and none of the popular “Wal-Mart like” life insurance quoting websites whose only goal is to sell you something ASAP will ever quote these better rates and products to any of their senior clients. This is a huge mistake!
The other time when term life insurance is not best is if you want life insurance until the day you die. If you do and if you can afford it, then a permanent life insurance policy may be best for you.
There are several different types of permanent life insurance.
Guaranteed Universal Life, also sometimes referred to as term insurance for life, is the most inexpensive type of permanent life insurance that has a guaranteed level rate that will never increase. Whole Life insurance is the most expensive type of permanent life insurance that also has a guaranteed level premium.
One of the main differences between these two types of permanent insurance is that guaranteed universal life does not usually have any or much cash value, and cash value is not guaranteed on most universal life contracts. Whole life insurance does have a guaranteed cash value.
Cash value is money you would get back if you ever cancelled policy, or you could take a loan against the cash value while still keeping coverage in force.
I would personally rather buy term insurance or guaranteed universal life and invest any additional money I have into my 401k instead of paying significantly more for whole life or another permanent policy with cash value.
If you’re just not comfortable having a term life insurance policy that will “end” at some point in the future, but a permanent life insurance policy at the amount you’ll really need is too expensive, you may want to consider “laddering” your life insurance coverage by purchasing more than one policy at varying duration.
You could buy one permanent policy and one term policy at different amounts. This would provide you the best of both worlds if you really want some permanent coverage but cannot afford or don’t want to pay for one permanent policy at the amount your family would really need if you were to die young.
For example, if you’re a 40 year old male, a non-smoker, and in good health, consider the following:
- A $500,000- 30 year guaranteed level premium term insurance policy will cost you $54 per month.
- The best $500,000- permanent life insurance policy available to you with a guaranteed level rate for the rest of your life has monthly cost of $223.
- While you may immediately opt for the 30 year level term policy above because it’s so much less expensive than the permanent rate, another alternative is that you could buy a $400,000- 30 year term policy for $44 per month and a $100,000 permanent policy for $47 per month. This combination would still provide you with $500,000 of coverage but with a combined cost of $91 per month. This strategy would still provide you with some permanent life insurance but will save you $132 per month compared to buying one $500,000 permanent insurance policy.
- Another alternative could be to buy one $250,000- 30 year term plan for $29 per month and one $250,000 permanent life insurance policy for $117 per month. This combination would still save you $77 per month compared to buying one $500,000- permanent policy.
Many people like the idea of having at least a small permanent life insurance policy to help pay for final expenses and/or to leave some money to their children or grandchildren.
If the same healthy 40 year old wanted a small permanent life insurance policy, he could buy a $25,000 permanent policy with guaranteed level rate for life and with monthly cost of $18.
Remember that all insurance rates are based on age and health, so it’s always best to buy any life insurance policy while you’re younger and healthier.
You can also buy any combination of policies at varying durations and amounts and you could even buy three or more policies if it made sense for you to do so.
If you are a senior citizen and you only need or want life insurance to help pay for final expenses or burial expenses at an amount under $25,000, then there are no term life insurance rates available to you. Your only choice would be to buy a permanent whole life insurance policy or a universal life policy.
To summarize, term life insurance is a good option for most young families, but universal life can be a more cost effective or a better policy for seniors. There are also no term policies available to seniors that want life insurance at amount less than $25,000.
There is no one best life insurance product that’s best for everyone. Beware of any agent that is pressuring you to buy one specific type of coverage or any insurance website rep that is trying to get you to buy any policy the first time you speak to them as these agents will rarely have your best interest in mind.