How does life insurance for old people work?

I have not seen the commercials, but consider why a person needs life insurance. You need life insurance to replace your income for your dependents if you die while you still have earning potential. If you are no longer working and living off your savings and investments, there is no reason you need life insurance. I cannot think of a scenario where a retired 80-year-old should have life insurance. You should leave behind a few bucks for a funeral. If you can’t afford to do that you probably can’t afford to pay insurance premiums either.

I don’t have life insurance because I have no one to live a benefit to.

Well, I take that back - I have a life insurance policy from my employer that will be in effect so long as I have my job. My sister is my beneficiary and it’s more than enough for my “final expenses”.

But buying a policy? Whatever for? I have no one to leave money to (other than sis and her kids). I figure I’m better off drawing up legal documents for what I want done with my stuff when I’m gone and setting up some sort of fund for that to pay for it because, to be honest, it ain’t gonna cost that much. No dependents, other than three parrots (have to figure out how to make sure they’re cared for). And putting what other money I have to making sure I’m cared for while I’m still alive.

I’ve got a meeting planned with a lawyer this year to make my decisions official, but honestly, other than cremation costs and figuring out where I want me (and the three urns of relatives I have custody of) to wind up for eternity there’s no need for a big payout.

Viatical settlements. They are complicated and not that common anymore, but they work more or less like you said. You buy a person’s life insurance off of them and then collect the tax free death benefit when they die.

This is a super limited world view. 5 years and thousands of clients into this business I can emphatically tell you that only the upper middle class view life insurance this way. Pretty much everyone else views it as a payment to cover final expenses or a way to buy discounted dollars to build a legacy. If you are upper class or lower middle class to poor will change the way you view this, but many more people buy life insurance for that reason than the one you listed.

I whole heartedly believe that the only time it’s better to make a prearrangment at a funeral home is if the people making the arrangements can pay cash. I believe this largely because I know many funeral directors who will gladly tell you what a massive rip off their payment plans are.

A decent final expense plan will run the average healthy 60 something non smoker 50-60 bucks a month. That really isn’t out of reach for most people. Forking over 10k in a lump sum is.

Spoken liken an insurance salesman.

This used to be a way for dying AIDS patients to get medical treatment and end-of-care life. The idea was that, in exchange for money needed now the dying person would legally made the viatical purchaser the life insurance policy’s beneficiary. Yes, the purchaser would make a bit of profit (that is, after all, how a business continues to exist) but the dying person, for whom a life insurance settlement after death is pretty much useful, would get money to take care of themselves.

It was not a scam, although not all the players were decent, ethical people.

And when the new treatment came through and a lot of those dying AIDS patients suddenly weren’t dying, or at least nowhere near as quickly, a lot of the viatical companies went under or got out of the business.

You can probably still arrange those sorts of deals these days. Like reverse mortgages, for some people in certain circumstances they can be a godsend. For others, it’s a very bad idea.

And, of course, in countries were people who are disabled, unemployed, and without money are not left to simply die this is much less needed. You didn’t see nearly as much of this sort of this in, say, the UK where people could get medical care simply because they were citizens and needed it rather than being told “no money? Sorry, no medicine.”

A starting point to quantify these questions of life expectancy and probability of lasting X years from a give age is the Social Security Admin’s Actuarial Life Table:

On the 2015 table a US woman has LE of 80.97 yrs at birth, 16.44 yrs at age 70 (IOW 86.44 expected age at death). Manipulating the numbers in the ‘probability of dying withing one year’ column, the woman has ~77% chance of living to 80 if she reaches 70, continuing the same calculation it passes through 50% between 86 and 87.

However that’s not saying life insurance companies don’t know how to price their policies. The core of their business is assessing life expectancy of sub-groups of the population. If their price implies a >90% chance of making it to 80 once 70, the reasonable bet is that the ins co will be right on average, for people who would seek such a policy and be approved for it at that price.

It’s hard though to think of too many cases where a $250k term life payout makes sense to buy for a person 70 yrs old. Maybe if you have dependent young (great) grand children intermediate generations of the family can’t or won’t care for? If you are very rich, old age life insurance policies can be structured to help avoid estate tax, but for much larger payoffs.

The small payoff ‘final expense’ policies as discussed are basically just prepaying funeral expenses, and since they are for expenses you know will have to be paid (as opposed to say a 35 yr old with young kids buying 15 yrs of term $500k life payout, that $500k will never be required it they make it to 50, ie kids make it to adulthood with parent still around), you could just direct the premiums to saving up for those expenses. Although in fairness to ins co’s, they are also on the hook to pay off those expenses if you die at 71 and haven’t made much progress with your savings. I think some not necessarily all of the skepticism/criticism of those policies is people either using the yardstick that something is a ‘rip off’ if it’s not being provided at cost, as it ‘should’ be, and/or for whom eg. $10k isn’t that huge an amount of money. Though I’m not saying those policies are good deals necessarily.

As for why people buy life insurance, I thought part of the reason was because the money paid out to beneficiaries avoids probate and is not subject to estate taxes. Is that no longer the case?

Life insurance has important benefits that are not always obvious. To begin with, the payout is not taxable as income.

You are ninety years old. You are about to have heart surgery. You give me a million bucks. I sell you a $990,000 life insurance policy. You die. Your heirs get the money without paying tax. Cool.

This is still a major reason people buy life insurance. It’s the main reason most wealthy people have a lot of life insurance.

Yeah, and that $60/month for four years will get me close to that $3000 lump sum cremation. If I can’t afford to put $60 in the bank every month , then I also can’t afford to pay the $60 premium. And if I can afford the $60 per month, I am better off putting it in the bank- after all, the money in the bank doesn’t disappear if I forget to /am unable to make a deposit for a few months as the insurance coverage will. There are indeed people who can afford to save the $60 every month but simply won’t do so - but I suspect those people are not the ones buying this insurance.

I notice that Colonial Penn advertises during the same timeslots /stations as that Ernie Hudson Carshield add - because they’re targeting the same market.

The federal estate tax exemption had been $5+ million. It’s now over $11 million. :eek:

A fraction of a percent of people in the US have to worry about that. Even the few states that have some sort of inheritance/estate tax mostly don’t tax it if it goes to a spouse or lineal descendant.

Avoiding probate is a good idea, esp. in California. Trusts are a good way to go if this is going to be an issue.

So life insurance for old people, as noted is mainly for the very rich. It would work for people who are worried about final expenses except the system is set up to avoid payouts for various excuses plus the real big one: unable to continue paying on the policy.

In short: don’t become a poor old person. (A corollary to the general rule of don’t become a poor person in the US.)

The biggest benefit of pre-paying for funeral expenses is that your family then knows something about what kind of funeral you want. A cheaper way of doing that is to talk to them, or to leave a document. If you want a traditional burial, and you’re young(ish), you can buy burial plots from the unimproved section of the cemetery of your choice. Plots that are not yet improved are a bit cheaper.

One thing to add to the equations is the fact that insurers are allowed to invest a portion of the money that they bring in. Regulations require them to keep a certain portion liquid for payouts, but they buy stocks and bonds with the rest.

Yes but 60 a month would get you closer to 20k of life insurance. And while yes the 60/m needs to be paid always, your family/funeral home /beneficiary gets the whole 20 k if you paid $60 or $6000. That can’t be said for savings. Also, it pays immediately.

It’s not a good choice for everyone. But for many it is.


I’ve always considered life insurance to be a poor idea. If you’re going to spend that kind of money for an insurance-type program, buy long term care insurance that you may actually benefit from. I feel no need to leave money to my kids, and my wife can live just fine on what’s in the bank if I kick off. My burial costs are covered by the military.

That’s a remarkably narrow view. The fact that it’s a bad product for you because of your specific needs and other funding means just that: it’s not good for you. For others, the underlying analysis is completely different. You might as well say Ferraris are a bad idea because you need something that seats seven.

You’re missing the point. If you plan to save $60 a month for four years for your final expenses, but you die after two months, your next of kin has to bury you for $120 plus whatever Social Security pays in funeral expenses now. In any event, you won’t buy much more of a funeral with $3,000.00 than you will with $120.00; even a cremation is going to cost over $6,000.00 on average.

Just to repeat, according to the SSA table a 70 year old woman has a life expectancy of 16.44 years which takes her to 86 or so.

I’m actually not missing the point - and I didn’t say it’s not good for anyone. It’s absolutely true that if I pay that $60 per month, my heirs might get $20K if I die after 2 months ( probably not if I’m buying through Colonial Penn, though, and I’m sure there are other similar policies). It’s also true that if I can no longer afford to pay the premiums after two years , and I don’t die until year three, I’ll get nothing. It’s a gamble , and if the payoff is the relatively small cost of a funeral it’s not as worthwhile as the relatively large cost of replacing my income to support my spouse and a couple of young children for 15 years. Doesn’t mean it won’t be good for anyone - but it does means it won’t be good for everyone.
BTW - the average cost of a* funeral* may be over $6000 - but cremation itself is not nearly that expensive. I got multiple quotes for cremation in NYC for under $1000 . One was $495 - which included everything that was legally required but absolutely nothing that was optional- no copy of the death certificate and you had to pick up the remains in person. Mailing them involved and extra fee.

^ This.

My family are big fans of bare-bones (sorry) cremation. Generally around $800-1000 and if you really go bottom-basement even lower. We then go out to a memorial dinner at a restaurant, either proceeded or followed by a few hours of meet-and-greet amongst the living and reminiscing about the deceased