Is Senior Life Insurance A Costly Mistake?

Is life insurance worth it for seniors?

Generally speaking, yes, life insurance can be worth it for seniors in Canada with dependents or outstanding debts like a car loan, mortgage, or unpaid credit card. But life insurance is not worth it for every senior, especially if the premiums are too high compared to the death benefit. 

For example, Raymond Ellis, who was featured in a 2012 article in the Toronto Star, was 81 and stuck with a permanent life insurance policy that cost more than $3,000 per year. His policy had absorbed more in premiums than it would ever pay out in benefits.

Life insurance is helpful and appropriate for some Canadian seniors—so how do you know if it’s right for you? The best life insurance for seniors helps you safeguard the financial security of your loved ones without relying entirely on your savings or stretching your budget.

Below, we explain how older adults in Canada can evaluate their life insurance needs, avoid buyer's remorse, and use permanent life insurance if appropriate.

Life insurance for seniors can make sense if…

Regardless of your age, financial need should be the most important factor guiding your life insurance decisions. 

A senior may need life insurance if one or more of these statements apply:

1. I have dependents: Children, spouses, partners, and other loved ones rely on me and would financially struggle if I passed away.
2. I have outstanding debts: Business loans, car loans, credit card debts, and mortgages may fall to my family members if I pass away.
3. I do not have enough savings to cover final expenses: My savings and assets cannot cover the cost of my burial or cremation.

If you’re not sure, try a calculator to figure out how much life insurance you may need. 

Add up the cost of covering your debts and dependents and then subtract the value of your assets and savings. If the sum is negative, congrats! You may not need life insurance. If it’s positive, you may benefit from a policy for your peace of mind and your family’s financial future.

Our expert take: Make sure your coverage still fits your situation

Mr. Ellis (from the Toronto Star article) purchased a life insurance policy with $45,000 in coverage at the age of 55. At that point, the mortgage for his Midland home was likely paid off. If he intended to leave something to his wife at an elderly age, he had more than enough time to save, as each of his parents lived well past 80.

Mr. Ellis likely didn’t consider—or wasn’t encouraged to consider—the reality of his needs and financial situation.

Life insurance for seniors can be a costly mistake if…

It may be a costly life insurance mistake for a senior to buy life insurance for any reason besides debt, dependents, and final expenses.

You may not need life insurance if you do not have anyone relying on you financially and your estate or assets can cover your final expenses.

Seniors should be wary of overly optimistic or fear-based sales pitches that have nothing to do with their real financial situation.

Seniors should hesitate if any life insurance company:
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Life insurance is a tool that should be tailored to your needs and budget, not a get-rich-quick scheme. If a deal seems too good to be true, it probably is! 

Things have changed in Canada, thanks in part to stories from people like Raymond Ellis.

Today, life insurance companies have revised their presentation of payment schedules and are more conservative in their projections. However, it’s always good practice to understand your policy’s premiums and whether they’re guaranteed level (and for how long) or if they’re tied to interest rates, investments, or other external factors that could suddenly change.
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Our expert take: Don't rely on projected returns

Mr. Ellis bought his life insurance policy in 1986, when interest rates spiked to 20%. He was shown a projected payment schedule that assumed interest rates would remain at 9.5%—but when they fell to 2-4%, his savings underperformed and his premiums increased drastically.

Is term or permanent life insurance best for seniors?

The choice between term and permanent life insurance is fairly simple—and we feel that term policies are best for most seniors in Canada.

• If your financial obligations are temporary, choose term.
• If your financial obligations are lifelong, choose permanent.

From a senior’s perspective, the flexibility and the cost benefits make term the best life insurance.

Term is flexible: Coverage is simple with virtually no management required. You can convert most term products into a permanent policy later (with no new health exams) if you lose your good health. Permanent policies may require active investment decisions.

Term is affordable: Term life insurance premiums are usually guaranteed level for the entirety of the term. Permanent life insurance premiums are higher, and may be tied to the performance of a savings or investment account. 

One note: Be careful of yearly renewable term life insurance, which lasts for one year and usually increases rapidly in price every year.

^{* Cost reflects the approximate average monthly cost for a fully underwritten, 15-year or permanent life insurance policy with $50,000 in coverage for a 60-year-old female non-smoker.}

Our expert take: Make sure you’re clear on the policy you buy

The Toronto Star doesn’t mention the type of coverage Mr. Ellis purchased, but it was likely universal life insurance (a type of permanent coverage) since the policy included a self-directed savings account. The danger is that—unlike a traditional savings or investment account—missing one payment could cause Mr. Ellis to forfeit the entire value of his universal life policy, so he felt obligated to continue.

“Universal life insurance policies can be risky for a reason. They’re the most complicated type of policy, and even if they allow you to change what you pay, too few people understand what they’re getting into. If your investments don’t perform as expected, your premiums can eat up the entire value of your policy.” — Erik Heidebrecht, Customer Service Manager & Licensed Insurance Advisor

How much does life insurance for seniors cost?

Life insurance costs tend to be higher for seniors in Canada, purely based on age and the elevated risk of mortality. Beyond age, costs also depend on your overall health, amount of coverage, type of policy, and length of term.

• Overall health: Smoking status, health history, risk factors, medications
• Amount of coverage: A $1M policy costs more per month than a $50,000 policy.
• Type of policy: Term policies are almost always cheaper than permanent policies.
• Length of term: A 20-year term policy costs more per month than a 5-year term policy.
• Underwriting: Full underwriting can unlock lower rates for healthy applicants.

Here are two examples: 

• 60-year-old non-smoking woman: Average life insurance premium starts at $36/mo for a fully underwritten, 10-year term policy with $50,000 in coverage. 
• 70-year-old smoking man: Average life insurance premium starts around $8,000/mo for a no-medical, 15-year policy with $2 million in coverage.

Your choice of life insurance provider also matters, as we can see in the table comparing the industry average life insurance rates with those from PolicyMe:

^{* Table displays the approximate average monthly cost of a 15-year term life insurance policy with $100,000 in coverage for non-smokers living in Canada.}

^{* Table displays the approximate average monthly cost of a 15-year term life insurance policy with $100,000 in coverage for non-smokers living in Canada.}

^{** Table displays the cost of a no-medical term life insurance policy with the same term length and coverage amount, and for the same type of applicants, averaged across all products contained in our study.}

^{* Table displays the approximate monthly cost of a life insurance policy with $100,000 in coverage for a 60-year-old living in Canada.}

For most families, term life insurance is the most affordable and practical option. Permanent coverage can make sense when protection is needed for life.

Not everyone qualifies for fully underwritten coverage. If you've been declined or aren't eligible because of your health, Guaranteed issue life insurance may still provide meaningful protection. It won't replace income like a larger term policy, but it can help cover immediate expenses such as funeral costs and outstanding bills.

Are life insurance premiums level or changeable?

Term life insurance premiums are usually level whereas permanent life insurance premiums may be changeable.

• Term coverage: Life insurance premiums are generally guaranteed to remain level for the entire term—that’s one main advantage of term life insurance.
• Permanent coverage: Life insurance premiums may depend on how your savings and investments perform—this is a common mistake that can trap seniors in a high payment schedule.

PolicyMe’s life insurance premiums are fixed for the entire term. Plus, you have a 30-day money-back guarantee so you can review your paperwork and make an informed decision.

Pay close attention to the payment schedule outlined in any policy. Before you commit, be sure you understand whether your premiums are guaranteed level for 10 years, 20 years, the whole term, or for life. 

Our expert take: Ask whether your premiums are fixed

In Mr. Ellis’s case, life insurance premiums were changeable—tied to the interest rates in his attached savings account. As interest rates fell, his premiums increased. Sadly, Mr. Ellis admitted he did not read his paperwork closely and missed the explanation that his payments were guaranteed for 10 years, after which they would rise until he turned 100.

What if you don't qualify for traditional life insurance?

Many seniors have concerns about underwriting and how health issues may affect coverage.

Generally speaking, you should start by applying for a fully underwritten life insurance plan first, which may save you money. 

Full underwriting (which may include a medical exam) gives insurers a more accurate picture of your health. For relatively healthy applicants, it generally results in more affordable life insurance rates even if you have pre-existing conditions.

Otherwise, seniors might consider no medical life insurance. These policies cost more but ask fewer (or no) health questions so approval may be easier.

• Simplified life insurance
• Guaranteed-issue life insurance

Need coverage without a medical exam?

Guaranteed issue policies can help seniors get life insurance if they’ve been previously denied coverage or if they do not wish to share their health history. PolicyMe’s guaranteed issue coverage is permanent. It can provide immediate financial assistance for your loved ones after your passing, but it should not be considered income replacement as coverage is capped at $100,000 up to age 70 (or $50,000 past age 70).

FAQ: Is life insurance for seniors a costly mistake?